Premier Foods plc

So good morning everybody and welcome to Premier Foods half year results for the 26 weeks that ended on the 27th of September this year. I'm joined by our CFO Duncan Leggett and between us we'll take you through what we've been doing in the first half of the year. So I'll give a bit of an overview and Duncan can take us through the numbers and then I'll come back and give you an update on some of the progress we've been making against our five pillar strategy. So to start off then with some headlines. So we're really pleased that actually growth stepped up from our UK brands in the second quarter. So up to 3% then in Q2 and that brought half one to plus 2%. And branded revenue then for the first half of the year, 453 million and up just shy of 2%. Now obviously what's going on there is two interesting things. Some really strong performance from our sweet treat brands. So 9.4% growth in the first half and actually double digit for Mr Kipling which is of course our biggest brand. And then grocery, our grocery portfolio which of course was suppressed somewhat by that long hot summer that we had. What was really good to see is as the weather started to normalise, halfway through quarter two, we can see that that grocery business bounced back quite nicely, which is what's driving part of that 3% growth. So UK market shares, and you'll be aware that we've gained quite significant market share over the last three years or so, so 130 basis points up. And we're really pleased we managed to hold on to all that in the first half of the year, despite that downward pressure on the grocery business caused by the weather. And profit delivery then, trading profit was up 0.4% and adjusted PBT up 2.2%. And that's after taking a full year's cost of the new packaging levy, EPR. Now, obviously, that's something which applies to a full year sales and it's something that will recover over a full year. But accounting principles require us to put all of that cost into period one and therefore into the first half of the year. So for way of comparison, if we were in fact just to take the first half cost of the EPR and see what trading profit would look like, then trading profit was actually up 7% and adjusted PBT up plus 10 in the half, which I think is more representative of the performance that the business has delivered. And that's actually with that in mind, which is why we're saying today that we are nicely on track to deliver our full year trading profit expectations and actually adjusted PBT now expected to be slightly ahead. And then down in the bottom right-hand corner there, net debt to EBITDA remains low at one time, and that's after the cash-out for the very recent purchase of the Merchant Gourmet brand. Now, in terms of performance against the five-pillar strategy, we've made good progress across the board here, really. So you've seen that growth on the UK core, so half one at 2%, but Q2 bouncing up to plus 3%. In terms of infrastructure investment, we've spent £23 million, and that's back into our manufacturing sites in particular, and we're on track to invest about £55 million this year in efficiency programmes and also the ability to manufacture some of the new products. In terms of category expansion, so this is sales that we're making from categories that historically we've not really been present in, and sales there were up 41%. It's still a fairly modest size base, but nevertheless, a continued really strong growth rate. And then internationally, our overseas businesses in particular, our biggest business in Australia had a really strong in-market performance. So sales to shoppers in store were actually up 17%. Unfortunately, you don't see that in the revenue because what we've also got is a compression, a reduction in the buffer stock that the retailers are holding in market in Australia. And I'll come back to that in a little bit more detail later. And then finally, in organic, so in organic growth, we've got really strong double-digit growth in the UK from both the SpiceTailor and Fuel10K, so they're both continuing their journey of scaling up. And as I said, in the quarter, we also bought Merchant Gourmet. We'll talk about that again later as well, but we expect that to follow a very similar pattern to Fuel10K and the SpiceTailor. And then before I hand over to Duncan to go through the numbers, I'll just give you a quick update on the pillars of our Emitting Life Plan. And I think what we're finding here more and more is that as we pursue the pillars and the principles of the Emitting Life Plan, we're able to make decisions which are good for the planet. Good for our products, but also which are good for us commercially as well. So a few interesting examples we've put on here. So in the first half of the year, our sales of non-HFSS products grew by 10% as we continue to reformulate our product ranges with recipes that are lower in fat, salt and sugar. and that's good obviously for public health but it's also good commercially because we know our consumers are trying to eat a little bit more healthily and it also helps future-proof the business and then of course Merchant Gourmet the brand we've acquired also supports healthier diets and actually the ingredients that go into that improve soil health on the planet pillar A really good example is that we've just installed, and it's just up and running, a solar farm which sits in the field next to our big bakery in Carlton where we make most of our Mr Kipling cakes. And this will provide up to 70% of the site's electricity requirements. So great in terms of CO2 reduction, but also great in terms of lower electricity bills. And then similarly in Lifton, but obviously a very different approach, we've installed a heat recovery system. So we obviously use a lot of heat to cook custard and to cook rice pudding. And what this system does is it takes the heat that's left over at the end of the process and recycles it back to the beginning and starts to warm up the next batch ready for cooking. So it's a really good use of heat recycling. Again, reduces CO2 and reduces our fuel costs down at Lifton. And then finally on the people pillow, as most people will be aware, we're almost in gender balance on our overall management population. And then the other thing we've put on there is that we're now working with Computers for Charity. So they're able to take and recycle our older IT kit. And so with that, I'll hand over to Duncan and he'll talk us through the financial performance.

Thank you Alex and good morning everyone. So I'm going to dive into the financials and I thought I'd start with some headlines. As Alex has said, we're really pleased that we've managed to grow trading profit in the first half. As Alex has just pointed out, it's a slightly unusual position in that we've had to absorb the four years charge of the extended producer responsibility levy. we will be offsetting and recovering this over the full year. So if we do exclude the component relating to the second half of the year, really good strong profit delivery up 7%. Looking further down the pier now, so adjusted profit for tax, that is our trading profit less our interest number. We're now expecting that to be ahead of where we thought we would be at the beginning of the year. And that is all around a later refinance of our high yield bonds. and leverage continues to be in a really good position. We know it's come down significantly over the last few years, and it's still only one times having bought Merchant Gourmet, which is really fantastic news because it means we're able to deploy further capital for value generation. So diving into the numbers, we're in good growth for the first half at branded revenue. So that's up 1.9% to 453 million. Really good performance from our sweet treats business, which I'll talk about later. And really encouraging to see the trend in our grocery business improving as we've gone through the second quarter. Non-branded revenue continues to decline half year on half year. We are still right-sizing that business and with it to a level of profitability that's acceptable to us. So that is producing a decline in non-branded, which leaves total revenue up 0.7% to just over 500 million. The original contribution is growing ahead of turnover, so we are seeing some volume benefits from the Sweet Treats factories coming through there, as well as our supply chain cost efficiency programme, and this obviously includes the benefit of the increased capital expenditure we've been doing. Obviously, this original contribution includes the full charge relating to EPR. If, again, we remove the amount relating to the second half, growth was significantly higher than this. I think trading profit I've covered and adjusted PBT, so our expectations and guidance for the full year is now slightly higher than it was coming into the year. For the half itself, adjusted PBT is up 2.2%. And again, this is all around lower interest cost, half year on half year. With our lower leverage, we've gone through the first half of this year with higher overall cash balance, which obviously is earning a return for us. You can see that flowing down to adjusted EPS of 5.4 pence and then net debt of 207 million. That is still lower than prior year, 14 million pounds down after having spent a net 46 million on Merchant Gourmet. So going into a bit more detail around our business unit, so starting with the grocery business, and this includes our international business, branded revenue is down 0.5% to £337 million. I think from a strategic process, Alex will talk about this a bit later, but really strong performance from our acquired brands with Spice Taylor and Fuel 10K in the UK. growing double digits strong new categories performance up over 40 and our premium range is performing really well we know that we had a softer q1 because of the weather impacts in grocery and obviously because this does include international as well we've seen some adjustment to market buffer levels of stock that have impacted the performance but as alex has just mentioned really encouraging to see the momentum back into the business in grocery with uk and ireland branded Revenue up 3% in the second quarter. Non-branded revenue declined 9% to £32 million. You can see some of the contracts we've exited there. Again, these are deliberate actions to get the business to the right level of size and the right level of profitability for us, which means that total revenue is down 1.3% to £369 million. Divisional contribution margin has ticked up slightly, so a couple of things going on here. We have got the benefits of the, again, the operational programme, efficiencies, looking at waste at sites, looking at the benefits of the capital expenditure. They're all flowing through nicely as planned. And also, we have consciously decided to invest a bit less behind our brands in the first half. We didn't think we'd get the return that we expect based on the impact of the weather. So we've consciously moved that to our third quarter and second half, which is great news, isn't it? Because then we've got even more firepower behind our brands at our key Christmas period. Sweet treats are the fantastic second quarter to follow the first quarter. So for the half, branded revenue is up 9.4% to 116 million. Alex will give some examples of this shortly, but some really good consumer-driven MPD that's performing extremely well for us. Even more pleasing is the performance of Mr Kipling within this. So Mr Kipling is up over 10%. Non-branded revenue is down 7.5%. Again, we are exiting some contracts. This actually will start to become flatter as we go through the second half. By its nature, non-branded will remain volatile, but for sweet treats, it will definitely flatten out during the second half. And that all leaves total revenue up 6.8% to $133 million. Moving down to profit, a really good performance. I think you can see the benefits of the branded performance flowing through to margin, as well as the strength of the Mr. Kipling brand. And clearly with the volume growth we've had in the first half, that then creates efficiencies in the factory, all of which have a nice leveraging effect as we go down the P&L. So divisional contribution is up over 20% to 14 million. Looking at net debt and how that's moved during the half, I think really good that we are still deleveraging even after having bought merchant Gourmet. Strong EBITDA performance, clearly driving cash flow. In terms of working capital, so we always have a stock build at this time of year. You'd understand going into our peak sales period, stock levels at the end of September are significantly higher than they are at the end of March. That is no different. It is slightly higher this September than it would have been last year. but very much just a position of where we are at the point in time our full year guidance for working capital very much unchanged capex clearly we are stepping up over time and we're also making a conscious effort to try and deploy it more evenly through the half so really pleased we've been able to spend 23 million in the first half and that's a step up from where we've been I think also with the ability of spending it, getting these projects in place so that we generate the returns as soon as possible, we're also guiding to slightly higher CapEx at 55 versus the previous guidance of 50 million. So interest of seven million pounds. If you go back to the first one of these I did, which was six years ago, that number was 18 million pounds for the first half. So you can really see the benefits of the deleveraging and the restructuring of the balance sheet that we've done. Dividends, £24 million paid in the first half. As a reminder, we stepped that up significantly by 62% at the year end, so that's been paid. And then the £46 million for Merchant Gourmet is the enterprise value, less a bit of cash in hand than Merchant Gourmet at the time of acquisition. So it wouldn't feel like a presentation for me without a slide on pensions. Actually, there's not that much new news. We have an ongoing tri-annual valuation, the results of which we expect to be early next year. But what I thought would be helpful was just a bit of a recap as to what's been delivered since the merger five years ago. And that is over 40 million of annualised cash benefit that we're seeing today. So that started with a £5 million reduction in May 2023, following some good performance from the scheme. The full suspension last year, so that was £33 million we were due to spend last year that we have agreed with the trustees to suspend. And the dividend match removal, that was about £5 million. Obviously, that would have increased as the dividend grew over time, and we managed to recycle that into dividend payment, hence the big rebase last year. Valuation data we will share when we can, and obviously we're working towards a buy-in transaction at the end of next year. So capital allocation very much unchanged and I think this first half is a great example of the capital allocation playing out exactly as we want. So we've got a good, spent a good slug of capex in the first half and wanting to spend more as we get into the year. Again all around the good returning high efficiency projects so we can start getting the benefits of those flowing through. M&A, I mean, Alex will talk about it in a bit more detail, but really, really pleased to have made the purchase in the first half. Certainly, things got off to a good start, and we're looking to get on with integration. And dividends, having rebased it off the back of the four-year results, are a big step up by 62%. We still intend to grow it faster than earnings as we move forward. So the final slide for me, I thought it'd be worth a recap of some of the things we're looking for when we're thinking about M&A. And again, it starts off with strong brands. So if you think about the Spice Tailor and Fuel 10K, the founders did an amazing job getting the brands to the scale that they did. Very much true for Merchant Gourmet as well. And what we're trying to do now is to lift the capability and scale of these brands to the next level. So with Spicer and Fuel 10K, we have successfully increased distribution, increased innovation, strengthened the pipeline, used our customer relationships to get some great feature. We very much expect Merchant Gourmet to follow the same model. I think the only other point to mention is almost a two-year gap between the merchant gourmet and the fuel acquisition. This just reinforces that we are picky, as we've always said. We'll only do the right deal. We'll only do a deal if we think it's right for the company. Merchant gourmet, very much hit, not just our commercial criteria, but our financial criteria, particularly return on invested capital. So really pleased to see the diligence that we're applying to this. And that's all from me, and I'll hand back to Alex.

Thank you very much, Duncan. So what I'd like to do now is just walk us through progress against the five pillars of the growth strategy. So as a reminder, what's sitting behind our growth strategy is this understanding that our core skill set is in building brands and growing brands over the medium term in a sustainable and profitable way. And so the idea is that if we can do that over a broader base using the same skill set, then in principle we can build a much bigger Premier Foods than the one we've got today. So as a reminder of those five pillars, starting on the left-hand side, so the first pillar is about continuing to grow our UK brands, because at the end of the day, right now, that's where our critical mass is, that's where the majority of our sales and profits are generated. The second pillar is investing back into our supply chain, where we've got significant opportunities to keep investing in improving efficiencies, improving productivity, and that obviously expands margins, which helps us with the fuel to invest back in branded growth. The third pillar is expanding our UK brands into new categories, so categories which historically we've not really played in, in different parts of the store. And a really good example of that is actually Ambrosia, which of course we extended into breakfast with Ambrosia porridge pots. The fourth pillar is building our international business, so building overseas businesses with critical mass. And of course, that's all entirely incremental to anything that we do in the UK. And then the fifth pillar are those inorganic opportunities that Duncan was talking about. So building the brands that we've already purchased, but then looking for more brands we can bring into the portfolio, which we believe will then deliver more value through the application of our skill set in building brands. And of course, what sits behind all this is our branded growth model. And as a reminder, this is how we go about building our brands and delivering sustainable, profitable growth over time. And we're very fortunate on the top left there that we start with really strong leading brands. That's true in the UK. It's actually more and more true in Australia as well now. So our brands are leaders in their categories. They're very well known by consumers and we've got very high household penetration. So most households will have at least one, if not several, of our brands in the cupboard. But as I've said many times before, that doesn't give us growth. It gives us a good start point, but it's then what we do next that drives the growth. And one thing we know is that FMCG brands, which can consistently innovate over time, have a tendency to deliver long-term revenue growth. And that's why our second pillar is really about building our MPD plans based on really in-depth understanding of our consumers. So we do spend a lot of time understanding how our consumers are shopping, how they're cooking and how they're eating and how that's changing over time so that we can then develop new products that fit with those habits, that fit with those trends and play a genuinely helpful role for those consumers. and within this which also includes our strategy of premiumization and then down the bottom left yes it's great that we've got these really strong well-known brands but they'll only remain so if we continue to invest in them and with marketing and advertising campaigns and that builds the brands maintains awareness and it keeps them contemporary and relevant for our consumers and then finally but very importantly it's about how we build our relationship with our retail partners and So we take the view that it's better to work together in strategic partnerships with our retailers, focused on driving mutual growth for the category, because with our strong brand positions, we will then tend to disproportionately benefit. So it's really then the application of those four things together. And when we do that well, that's how we get consistent growth, consistent market share gain. So if we just talk about how we've been applying that to the first pillar, to our core UK brands. And as I mentioned before, we had 3% growth from our UK brands in quarter two. But we can see here is that big step up from the 1% we had in quarter one to 3% in Q2. And yes, we know that Sweet Treats has grown very strongly, our Sweet Treat brands up 9.4%. But one of the big differences between Q1 and Q2 was the impact of that hot weather on quarter one and actually on the first half of Q2 as well. What's also sitting behind that is continued strong performance from those premium ranges. So if you group together all our premium ranges, they actually grew by about 13% in the first half. And as I mentioned earlier, you can see there the step up in market share over the last three years or so. And we're really pleased that we were able to hold on to those strong share gains despite that downward pressure on our grocery brands due to the warm weather. And if we walk through the branded growth model and see what's been happening in the first half, and as I said before, having a strong innovation plan is really important. We work on a number of key consumer trends, which you can see down the left-hand side there. But this year, we do have a particularly strong pipeline of new products. And here's just a sample of some of those that we've launched in the first half of the year. So we launched Visto Peri Peri Gravy, which is clearly targeted at a slightly younger consumer. And we've got bachelor's pasta and sauce. Well, bachelor's pasta and sauce, of course, has been around for a long time, but in a dried format that you had to rehydrate. and what we've got here is a wet format it's ready to eat you microwave it and in 90 seconds it's ready which it seems such an obvious thing to do you might ask why we've not done that before but actually technically it's quite difficult to do well so our chefs have spent quite a bit of time making sure that the pasta doesn't go soft in the pouch while it's sitting in the sauce but given that we've now cracked that and we've launched that into the market it's actually performing very well indeed in the middle at the top there you've got Lloyd Grossman premium pasta sauces which is a new range we've launched authentic pasta sauces made in Italy from high quality locally sourced ingredients we've then got the spice tailor expanding into a new cuisine type with Mexican and then we've got from our strategic partners at Nissin an expansion of the demo ramen noodle range And over on the right hand side there you've got three examples of how we're expanding Fuel 10K beyond its original breakfast heartland into other parts of the store. So therefore we've got Fuel 10K instant noodles, instant soup, and then similar to the microwavable bachelor's pasta and sauce, there's a microwavable what we call protein bowls, and that's actually Mexican bean chilli. And I've got several examples there from Mr Kipling, the two I'm going to pull out are on the far left with breakfast bakes, And this fits with our strategy of getting more presence in the morning from our overall range. And this takes Mr. Kipling into that space. And the example there is a blueberry breakfast bake, which is actually also non-HFSS, so not high in fat, salt and sugar. And then right in the middle there, there's a tub which represents a range of a new product range we've introduced into Tesco, which is tubs of bite-sized pieces of Mr. Kipling cake, which obviously designed for sharing. Very early days on that one as well, but so far the sales have been really impressive. So a really strong pipeline that's come to market during the first half of the year. And I also said it's important that we continue to support and grow our brand equity. So we use a number of techniques for that. So we continue to use TV advertising, and that's because we've got several million products being purchased a day by consumers, and so therefore we need to talk to several million consumers, and TV's still got the best reach, and I'm including with that digital TV as well. We also got out of home which more and more we use particularly for communicating new products and we try to target things like bus stops and locations that are close to supermarkets and so it reminds you when you're on the way to the store. And then more and more we're using digital and social media and this is really focused on targeting younger consumers that 18 to 35 demographic so as you're leaving home and you're setting up your own kitchen and you're going to start doing the cooking yourself. Now, the other interesting thing about digital and social media, of course, is that the get-in cost is a lot lower than TV. So what this allows us to do is to support some of the smaller brands, which previously we wouldn't have been able to do. And then I also said that install support is really important. That's why we have those strong strategic partnerships with our key retailers. And our execution install in the first half has been really great. And that graph on the left-hand side, I think, is one of the most powerful things I want to show today, which is how our distribution has evolved from where we were a year ago at this point to today. This is really a measure of how much more distribution we've got, so how many more products in how many more stores. Overall, we have a 4.7% increase in distribution, which I think is a really positive number. Grocery is very healthy at 3.1%, but the standout number there is Sweet Treats at 14.8%. That's 14.8% more of our Sweet Treats brand's products in store than they were this time year ago. And that's really helped by that very strong MPD pipeline. So the number of new products that we've launched over the last year or so. In the middle there, we continue to get really impactful in-store execution in terms of displays. That's a really nice Gondor N that's got a series of our brands and products on it. And then this year we also started doing some outdoor sampling. So this was taking place in the car parks of large supermarkets where we were cooking up some summer food using things like cape, herbs and spice on barbecue and also the Lloyd Grossman pizza range. So if I move on to the second strategic pillar now, which is investing back, particularly into our manufacturing sites. And as I said, we're on track to deliver about £55 million of investment in the year. So a big step up from where we used to be if I go back five or six years. And remember, many of these projects that we're working on have still got really good paybacks in that three to four year kind of window. A couple of examples we've pulled out to show you, a good example of growth capital, so this is putting in place the capital needed for new products that we launch. You'll remember we talked before about the success we've had with Mr Kipling birthday cake tarts, and we also, it has a sister product as well actually which is on there, which is strawberry and cream tarts, and we needed some capital investment into one of the sites in order to be able to automate the manufacturing of those, which is something we've done. And then that image down the bottom there, that big complicated network of pipes, is actually a cooling process for our mini rolls and cake bars under the Cadbury brand. And what this does is actually cools down the warm cake as it's come off the product. So actually it's more efficient and it actually saves on food waste.