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.

Some good examples of how we're driving growth and also reducing our cost base through capital investment. If I move on to the third pillar then, so new categories.

The growth we're getting from categories that historically we've not been present in. And of all the experiments we've done, the two real winners are ambrosia porridge and cape herbs and spice. So ambrosia porridge pots. two real winners are Ambrosia Porridge and Cape Herbs and Spice. So Ambrosia Porridge pots expand distribution and launch new flavours. And the new news there is we've actually made now a Fuel 10K version of this, which is just coming to market. So a protein enriched version of that three year Kega, a very similar trajectory as we gain more market share, we've increased our distribution and we've introduced more flavours into the range. And then the new one that's really come onto the map now is some of our Fuel 10K granola. And remember, of course, that Fuel 10K chocolate granola is the best-selling granola in the UK. and you mix the granola into the protein yoghurt. Very early days, put it in a couple of retailers so far, but I've been really impressed by how well that's selling.

And in fact, one of the retailers has already started to increase their store count, their distribution on that.

So really good performance and 41% growth from those new categories. And so we'll now move on to international, so the fourth strategic pillar cake held in our biggest market by the Australian retailers. And to understand that it's important we understand the supply chain a little bit here. So we manufacture the cake in the UK, we freeze it and it gets shipped to the port and then actually the retailers own it from that point onwards and are responsible for shipping it down to Australia and holding what they consider to be an appropriate level of stock. And historically they've sat on a decent amount of stock to cover some of the uncertainty that we've had in shipping times down to Australia, obviously with the difficulties in the Middle East and lots of boats having to take the long way round. So those retailers have now come to the conclusion they don't need to sit on as much stock and so they've started to reduce it. And that reduction in stock obviously manifests itself in the fact that they don't need to order as much from us because they're working from the stock they've already got. So that's what causes the impact on revenue. But actually, if you look at performance in market, we're really very, very pleased with it. And I've included some of the numbers here. So we actually, if I look at the sales we've made to shoppers from stores, so scanned through the EPOS tills and measured by Sakana, we actually increased those by 17% in the first half. So a really strong performance, and which ultimately will eventually pull through to turnover. Mr Kipling increased its household penetration and if you look down at the bottom there we've got some phenomenal market share gains and in fact actually we've got record market shares in the first half in Australia so really strong 190 basis points increase in our cake market share and a 450 basis point increase in our Indian sources which is pretty staggering so really pleased that and actually one thing that's helping that Indian performance in the Indian market share is the TV advertising that we've put behind the Spice Tailor in Australia so what that's doing is introducing the brand and making more people aware of it that will then go on and try it and of course the one thing we know about the Spice Tailor is once you try it and realise how delicious it is you tend to come back time and time again it's that working really well for us in Australia And then quickly moving on to North America on the top right hand side. In quarter two, we saw double digit revenue growth as we launched our apple pies into the US. So one thing we've learned about the US is obviously it's a big apple pie market, but most of those apple pies are family sized. And there's really not a lot of sort of standard, what we would consider individual apple pies in the UK. So we've launched our Mr Kipling apple pies in the US and have really seen some quite encouraging initial performance, which catapulted into double digit growth. At the same time, we've also launched in our new packaging. So remember, we discovered that US consumers see British cake as being a better quality cake. And so we put UK queues onto the pack. So therefore, we've got pictures of Big Ben and Union Jacks and things on the pack. And in Canada, we've got continued good momentum for Mr. Kipling and for the Spice Tailor. Then go down the bottom to Europe and we're continuing to expand distribution of Sharwoods and the Spicetailer. And you might remember I said once before that we were putting dedicated sales resource into some of the big cluster markets in Europe. And the idea there is that then we start to own the distribution relationship with the retailer from a selling point of view, even if we're then using a third party to do the logistics and the distribution. And that's already starting to have an effect. So the first resource that we put in place was in the Netherlands with a head of sales responsible for Benelux. And that's already starting to land new distribution. So we've just managed to secure fuel 10K distribution in one of the big retailers in the Netherlands. And also we've got Spice Taylor into Jumbo, which is one of the other big retailers in the Netherlands. So really that turning into distribution gains already. And then Cadbury Flake Cake, we continue to expand in the Middle East where it's actually very popular down there. And we shall move on now to talk about the brands we've purchased, so both the Spicetail and Fuel 10K going double digit in the UK, strong market share gains, and really just benefiting from the branded growth model application. So new products coming to market and supporting the brands with digital and social media. And then in Australia, as I said, we've actually got mainstream TV introducing the brand to more people. So really happy with the performance there. And then obviously in the quarter we bought Merchant Gourmet. So a great brand, strong double digit growth, really great track record, market leading positions and really in line with consumer trends. So healthy eating, it's a premium brand and it's a convenient whole food. It's already proven its ability to expand into new categories. And it's got exceptionally high consumer repeat rates, even higher than the Spice Tailor. And so we were really quite impressed with that. And it's completely complementary to our existing brand portfolio, of course. So what we're going to be doing here is pretty much the same as we did with the Spice, Taylor and Fuel 10K because we see this brand following exactly the same trajectory with really strong growth. So we see opportunity for further distribution expansion because if you look at how well Merchant Gourmet sells and what we call the rate of sale, it deserves more distribution than it's got. So that's something important. What we've seen with Fuel 10K and the Spicetail, and we expect exactly the same to happen here, is as you significantly scale these brands up, your costs don't increase anything like as quickly as your top line's increasing. Really, there's just a bit more brand support. And as a consequence of that, we see quite a significant drop through of that turnover growth through to improved profitability. So if we look forward into half two then, and we've got some really strong plans across the board. If we look at our UK brands and the innovation plans, we've got another series of new products that are coming to market. And as I said before, I think this year we've got a really strong line-up of new products. So some of the examples we've pulled out there, if we look at the top left, I said before we'd had some good success with the ready-to-use microwavable pasta and sauce, so this just extends that out further into ravioli. Oxo brought to market two flavours of bone broth, so this is following a trend that we picked up in the United States, and people enjoying that for the benefit of protein and collagen. And we've got Bisto, which has brought a premium ready-to-use version of gravy. So this is in a little tetra pack. You just pour it into the pan. Fuel 10K there. We talked already about Fuel 10K ready-to-eat porridge pots, so essentially replicating what we've done with Ambrosia. But this is Fuel 10K now going into rice pudding, so a protein-enriched chocolate rice pudding. And then bottom left there, we've got Angel Delight with bubble jelly. So you'll probably be aware of the trend to bubble tea. And this is a jelly version of that idea. So it's jelly with bubble balls in it. So that's also only been in market for a few weeks. But we've been really very impressed by how well that one's selling. And then we'll be bringing to market, working with our strategic partners at Nissin, a protein version of the very successful Sober Noodle Pots. If I move on to the second pillar, which is our investment back into infrastructure, there's a couple of really exciting projects I want to highlight here. The one at the top is the first in what will be a series of what we're calling replatforming projects. And replatforming for us is the replacement of one of our existing production lines with something which is much more up-to-date, much more state-of-the-art. And what we're finding that that's able to bring for us is much tighter control of the production process, leading to much better quality and consistent product quality. But at the same time, the speed and the efficiency is meaning that we can produce it at a lower cost. So essentially we get a better product for the consumer at a lower cost to produce. And then down the bottom there, what you can see, that image is a new, more efficient boiler, which we're currently in the process of installing into our workshop site. And we'll be doing something very similar at the Lifton Creamery as well. And so those two sites use steam in order to cook some of the products, and we use the boilers to generate the steam. And what we're doing is replacing some of our big older boilers with these new, much more efficient ones, which are also a lot smaller. So this means that we will use significantly less gas. So that's better for the environment, of course, but it also saves us money on our fuel costs. And actually, the other thing that these do is they actually drop us out of one of the government levies, which is related to boiler size and boiler capacity. And so we'll no longer be part of that, which is a further saving on top of the saving we make in gas utilisation. On the new categories pillar, pillar number three, we've talked about the Fuel 10K yogurts, which have been very successful so far, so we'll be continuing to drive those and be looking to get those into more distribution in early stages. But there's there the Fuel 10K ready-to-eat porridge, which essentially replicates what we've done with Ambrosia. Moving to our overseas business in Australia, probably worth pointing out, this is a version of the Spice Tailor. So Spice Tailor is generally a pack made for two people. But we do know that particularly the best selling product in Australia, which is butter chicken, which is on there, is a milder flavour and often enjoyed by families. So what we've done is we've created a larger family size pack. So you just have to use one pack to make dinner for the family. And then what we also should see in Australia is we should see the tapering off and dissipation of that impact from the reduction in buffer stocks on cake. Moving forward to North America. So in the US, we'll be getting further distribution of the Spice Tailor. You might remember once before I said we were in one customer and seeing how that was going. And we've been pretty pleased with the performance. So we're now extending that out into a second big customer, which will come on stream in the second half of the year. And we'll continue to expand our Mr Kipling apple pies, because we've been very pleased with how that started in the US, including into Canada, where we've just gained distribution in Canada. Walmart for our apple pies, which I think is about 280 stores. And then in Europe, we'll continue to build distribution of the Spice Tailor and Sharwoods and also now Fuel 10K. As I said before, we've just gained distribution of the Spice Tailor in a big customer in the Netherlands. And then Fuel 10K in the second half will be in the Netherlands and will be in Italy and will be in Portugal as well as we start to roll that brand out now to more countries. So lots happening across the board and at the same time we've got written down the bottom there the M&A team will continue to look for more brands that we can buy and which fit our criteria and where we believe that if we apply our branded growth model we'll be able to deliver further value. So to sum up from me then, look I think we've had good UK branded revenue growth despite the warm weather. We were really pleased how it popped up in quarter two once the warm weather started to dissipate. We've got particularly strong performance from Sweet Treats, that 9.4% growth from our Sweet Treats brand and over 10% from Mr Kipling. We're making further capital investment into our manufacturing sites with attractive returns. And the two acquired brands, the Spice Tailor and Fuel 10K, have continued to grow really strongly. And then plus, of course, in quarter two, we made the Merchant Gourmet acquisition. In terms of outlook, we expect revenue to step up in half two, and that we expect to be a combination of volume and price mix. You've seen we've got a really strong innovation pipeline. I think it's the strongest we've had for several years, to be honest. And we'll start to see the benefits of the Merchant Gourmet acquisition as we go through the integration process. So with all that in mind, we're on track, in fact, nicely on track to deliver our trading profit expectations for this year. And as I said, adjusted PBT now slightly ahead. I'm always conscious that we're always having this conversation as well, halfway through what is our most important quarter in Q3. And whilst there's still an awful lot of water to go under the bridge before we get to Christmas Eve, at the point where I'm standing now, I'd say that we're quite happy with that and that we're on track. So look, thank you very much, and we'd be more than happy now to take your questions.

Star 1 on your telephone keypad, and just make sure your line is not muted to allow your signal to reach your equipment. So star 1 for questions. Our very first question this morning is coming from Mr. Charles Hall of Appeal Hunt.

Please go ahead. Morning, Alex. Morning, Duncan.

Well done on good progress through the period. Could you just give a little bit more color on that trend through Q2 and into the early part of Q3 and also a bit of feel on price and volume mix?

Yeah, sure. Thanks, Charles. So, yes, of course, there was a sort of transition between quarter one and quarter two on our grocery business because of the weather. Sweet treats remained very strong all the way through, of course. But really, if you look at what the weather did in quarter two, actually, July was pretty hot. So the start of the quarter was very similar to quarter one and then things improved as we went through August and September. So essentially exit rate was a lot stronger than where we were on average through the quarter, if that makes sense. And then looking forward into the second half, obviously we'd expect growth to step up in the second half and then that being a mix of volume and value. Does that answer the question, Charles?

Yeah, and sort of what, broadly even mixed between volume and value?

I mean, historically, that's where we've been. I think we'll have to see how it plays out. There is obviously some inflation in there in the second half, but historically, we've tended to be about 50-50. Perfect.

And then on distribution points, one of the... great successes has been you landing new products and then sticking on shelf post the initial launch. Have you got any color on how successful you've been on recent product launches in terms of maintaining them on shelf?

I've not got any up-to-date stats on that. I remember the last time we looked at it, our success rate was about 75%. So we measure that as being still present on shelf two years later. So a really good measure of sticking power. I haven't got a more up-to-date measure of that. What I can say, though, Charles, is that we're really pleased with this year's NPD pipeline. This is a stronger pipeline than we've had for several years. And so there's lots of things in there that have already launched that we're really pleased with or are just coming to market now. And the early signs are really good as well. So that's going to be a good sign looking forward.

Thanks, Alex.

Thanks.

Thank you, Ed Sheeran. Next question will be coming from James Edwards-Jones of RBC. Please go ahead.

Thank you. Hello, Alex. Hello, Duncan. Good morning. A couple, please. First, well, they're both financial, so probably for you, Duncan, but what will a pension buy-in mean in terms of both, I guess, financial disclosure and the reality of Premier's liabilities towards pensioners? And second, the increased CapEx guidance. Where's that increase going? What should we be thinking about for future years?

Perfect. Thanks a lot, James. Let me take both of those, probably in reverse order if that's okay. Yeah, CapEx, I think we've been working hard at trying to obviously deploy as much capital as is sensible and we can sensibly do. We know we've got a big pipeline of projects. We know they return really well for us in terms of payback. And as I say, this year we stepped up guidance to about 50 from about 40-ish last year. And I think what we've seen during the first half is really good progress is actually putting that capital to work. Clearly, it's in our interest to get that down, projects in and running, getting the returns as quickly as we can. We probably made a bit more progress than we expected during the first half, which means we think we'll spend a bit more for the full year. So ticking up guidance to your point up to 55 million. So from our perspective, This is really positive. This is really what we're all about to do. And we know we've got a good track record of generating returns. Probably the other piece is feeling really good about the pipeline of projects, if you like. So the 50-odd million, 55, we can see a good home for that capital over many, many years, which gives us the fuel for our margin progression that we've seen so far. So very much the 50-55, I would say, is still around what we'd expect to go to spend over the next, few years, which again goes to show we've got plenty of good opportunities to deploy capital effectively. And then just on pensions, I mean, look, I think what a buy-in does, I suppose you know, it locks down all the remaining risk in the scheme. The company's still responsible for the pension scheme. It's still on the balance sheet, although there'll be some adjustments as and when a buy-in transaction happens. It's probably a bit too detailed to go into now. But the risk is completely locked down and then one would typically move towards a buy-in transaction which then removes it from the company and from the balance sheet. But I think, you know, that is something we're working to. We've been saying that we expect to get there by the end of next year, you know, round about as best as we can predict these things. But I think I'll probably just reiterate what I said before is sitting here today, I view us pretty well locked down. We've got a really sophisticated hedging strategy, so we're not really exposed to interest rates or inflation. We are continuing de-risk the assets and we made further progress of that during the first half. So we are taking less risk. So actually, I almost knew the pension scheme, you know, pretty much fixed in terms of level of risk out there. Clearly, we need to formalize that by doing a buy-in, and then it may well be that we buy out after that. But certainly sitting here today, even though we're working towards the buy-in, feeling really comfortable with where the scheme is and the trustees continue to do a great job running it.

Thank you very much. Thank you, sir. We'll now move to Karine Elias of Barclays. Please go ahead.

Hi, congratulations on the very strong results and thanks for taking my questions. I just wanted to go back to one of the comments on the bridge facility that you've got. Understand the flexibility overseen, but just understanding how you're thinking about the refinancing. Is it just you being opportunistic, waiting for rates to be lower, or how should you interpret that? Thank you.

Yeah, morning, Karine. Thanks very much for the question. Clearly, we need to refinance the bonds. The high-yield bond market has worked pretty well for us in the past, so I think that's certainly where we are today in terms of expectations for the future. The reality is that we're sitting on a 3.5% bond, and any new bond is likely to be more expensive than that. So, we are making sure that as best as we can, in a sensible way we can, we can approach the bond market in an ordered and sensible way to try and get the best rate possible. To help us with that, as you pointed out, we put in place a bridge facility which effectively, obviously as you know, gives us committed financing and allows us to be a bit more deliberate and take a bit more time to do our best to try and approach the market at the right time. just to push back on timing and obviously that's flowing through to our interest guidance and upgraded expectations for profit before tax for the year.

Thank you. Thank you.

Thank you, Kareem. Next question we have from Darren Shirley coming from Shore Capital. Please go ahead.

Yeah, morning, all. Morning, Darren. We had a visible trust on EPR. Things were being a bit of a distorter in the year. And obviously a headwind you didn't want. Is there anything you can do to reduce your exposure to EPR? I mean, in a sense, a lot of it's weighted towards sort of glass packaging or heavier packaging, et cetera. Is there any way you can do to reduce your exposure to that? Go forward.

I think the short answer is yes I think the first thing to clarify is obviously that the way EPR has been administered it means we or at least accounting principles around it mean we have to take all of the cost in the first period of year so it manifests itself in half one but we have got it all covered so it is all being recovered it's all been recovered over the full year but obviously that's happening over a year rather than just over the first half so that's why it creates that distortion Can we reduce our exposure? Yes, we can. And we continue the programme we've had for a number of years, which is about reducing the amount of packaging, making the packaging more recyclable, and we can change the mix of the packaging as well. So there's definite work we can and will do on that. There's more to go after. But what we don't really know is how the scheme is going to evolve either. So I'm not necessarily banking any upside on that looking forward yet until we see how the scheme evolves.

And then another one in Australia. Can you just, in terms of when did that sort of buffer de-build, let's say, begin? And when would you expect that to end? And so we start to see sort of the good underlying stuff that you've talked about coming through in terms of sales. And when we do see that coming through in terms of sales, I mean, what should we be looking at there to... for you to be viewing it as a success, Alex? Is it double digits? Is it high double digits? If you could give us some idea on time and magnitude, it would be helpful.

Yeah, sure, Dan. So, look, I think it started in the back end of Q1, but we saw the bulk of the effect during Q2. Obviously, we don't control it. It's really up to the retailers how much stock they want to have in their warehouse. Has it finished? Probably not quite yet, but we'll see it taper off, I think, pretty quickly as we go through the second half. I think most of it's happened in Q2, let's put it that way. And then, what sort of performance do we expect to see? I think Australia's clearly had... notwithstanding that this stock reduction, the in-market performance that I mentioned earlier has been really fantastic. I mean, 17% growth is really excellent performance no matter how we look at it. But I think we also have to accept that Australia is getting to be a more mature market for us because in the categories we're in, we're the leader, so cake and Indian sauces. And as we get more mature, then the percentage growth rates are bound to taper off a bit. Now, having said that, you know, the counter to that is we're also extending into other categories in Australia, aren't we? So we're extending into East Asian cuisine with the Spice Tailor. We're extending, we've put our first feet into gravy. So we've got the Bisto Best product in Australia, although we don't have the trademark, so it's called Paxo Best. And we're looking at other categories and other ways we can expand, particularly with things like Fuel 10K and potentially Merchant Gourmet. So we'll have to see how that all plays through. But I'd see a maturation of what we've got in cake and Indian sauces, but then growth coming from the new things we expand into.

Thanks, that's helpful. And then just a last one on marketing. Speaking to one of your branded food peers, but on the drink side, not too long ago, they were highlighting in their analyst meeting how AI is just basically structurally changing their capability and cost in terms of creating adverts and pace and all of that sort of stuff, and was indicating that sort of the old WPP model was basically dead. I mean, where are you now in terms of your own capabilities in that marketing and AI. Is that something you're going to be, is it a case of we'll see more stuff get more bang for your buck or is there a, Is there a budget saving there? Anything you can say in terms of sort of that future of marketing that would be helpful?

Yeah, no, I mean, absolutely, yes. And we're seeing, I mean, obviously we've got AI helping us in several parts of the business and machine learning as well. But I think actually marketing is one of the areas where you do see more immediately it's starting to help us. So it starts to help you with research, it starts to help you with concept development, it starts to help you with pack design. There's a number of ways in which AI is already coming in and helping us. And we're taking an approach there where we're not putting significant upfront investment into that. We're actually working with some of our external partners and using their capabilities. But yes, you're absolutely right.

Okay, well, I've had my three goals. Thank you and well done.

Thanks, Darren.

Thank you very much, sir. Next question will be coming from Matthew Webb calling from Investec. Please go ahead, sir.

Thank you. Morning, everyone. I wonder if I could just start off by asking about that 13% growth figure for your premium ranges and to what extent that is kind of natural growth, as in growth of existing products, you know, very much being sort of by the consumer, as it were, and to what extent that has been driven by your new product development. And then the second question, which is partly related to that, is clearly the UK consumer is not in the best place. You're seeing strong growth at the premium end. Are you also seeing strong growth at the value end? What's happening down there, whether that's just That would be really helpful. Thank you.

Yeah, morning, Matthew. So, yeah, look, I mean, obviously we're delighted with that 13% growth in the premium ranges. The answer is it's some of both. What we're learning more and more is that there are definitely shoppers out there, consumers out there who are prepared to pay a bit more for a product that is noticeably better. So as long as the product is genuinely better, there are people prepared to pay that bit more. And some of it is growth in our longstanding premium ranges like Bisto Best, for example, which is performing better than Bisto on average. And then some of it is actually driven by new products we brought to market. So we launched, for example, the Ambrosia Premium range, the Deluxe range a few years ago, and that's continued to grow very strongly. And then in this first half, we've put premium version of Lloyd Grossman's sauces in there, which I referenced earlier that, you know, sort of made in Italy out of premium ingredients. So I guess some of it is consumer pull and some of it is us bringing more premium ranges to market, given that we know that there's consumers there who want to buy them. So that's great. In terms of the overall consumer environment, it's an interesting one, this really, isn't it? Because you've got to remember that. most of our products they are really relatively low-cost things to buy you know we're not selling cars here we're selling things that only cost a few pounds to buy and we all need to cook and the cheapest way you know the cheapest way to eat is to cook for yourself at home and so a lot of our products go into those making making those meals so what tends to happen in times of know economic volatility or uncertainty is that our sort of product portfolio tends to be relatively resilient so we don't really feel the highs and the lows of how the consumers feeling because you know people people need to cook and eat anyway what we do see is we see variance particularly in the number of people eating at home versus eating out or getting takeaways so when the consumers under a bit of pressure we see actually people dropping into our brands who would have otherwise maybe gone out for dinner on Saturday night. So I would say it's a pretty resilient portfolio.

Got it. Thank you. And then just one final question. Just hearing, again, the process of getting your product into Australia, freezing it, shipping it halfway around the world, it still strikes me as a challenge. not the most efficient way of doing it. I mean, are there any thoughts of switching to local production in Australia and maybe getting a third party to do it for you?

No there isn't actually and the reason for that is you know the kit you need the production line you need to make the Mr Kipling cakes are you know expensive big and complicated bits of equipment production lines that doesn't exist in Australia and it would not be economically sound for us to start to invest capital in Australia to produce those given the absolute potential market size so we will continue to ship from the UK, because despite one's initial reactions, that actually is the most efficient way to do it.

Okay, thanks very much. Thank you very much, sir. Ladies and gentlemen, as a reminder, if you have any questions or follow-up questions, please press star 1 at this time. Next question is coming from Damien McNeill of Deutsche Bank. Please go ahead.

Hi. Morning, everybody. Thanks for taking the questions. I think the first one is around your market share development. Now, I appreciate you've made pretty good progress over the last three years, up 130 basis points. But given the fact that share gains seem to have stalled, can we read into that that competition in UK branded has got a lot harder in recent months? Just any comments on that, please? Just looking at the sort of costs, so your input costs for 2.8 and into next year, is there anything that's moving that's worth flagging that may impact on your cost line, please?

Yeah, morning, Damien. So, yeah, I mean, look, obviously, we've been delighted to, you know, take 130 basis points of market share over the last three years, and I think that's... It all comes down to the brand and growth model and how we drive our brands. I think what we've seen in the first half of this year is we've continued to make really good progress taking market share with the Sweet Treats brands and obviously 9.4% growth and actually double digit growth for Mr. Kipling is obviously above market growth. What we've seen in grocery is the impact that that hot weather has structurally compresses your market share. And it's because our share tends to be highest in categories which are most weather affected. So Bisto, for example, we've got a very, very high share of gravy. Gravy stops growing when it's hot. And so consequently, we get a structural market share rebalancing. So I think that's probably the biggest factor in there. Yes, our categories are always competitive. We've got categories that are more competitive than others, but actually I think the biggest thing going on here is the weather impact on market share factor. In terms of input costs, I mean, look, we buy a huge basket of different things from packaging to ingredients, and then obviously we've got energy and all sorts of things. There's nothing really in there. We're all aware of cocoa, obviously, although that's come off the peak now. There's nothing in there that's particularly notable, I don't think, going forwards. At the moment, our input cost inflation, as I've said before, is about in line with food price inflation in general, so mid-single-digit. And, you know, we're hopeful that what will happen as we go forward next year is that that will start to taper away and the food industry will be back to where it used to be, which is sort of fairly benign, low single-digit input costs and then food inflation. But we'll just have to see how it plays out.

Yeah, let's hope there are no surprises from Rachel next week or couple of weeks.

Thank you, sir. Ladies and gentlemen, as a final reminder, if you have any questions or follow-up questions, please press star 1. We do not appear to have any further questions. Let's go back over to the management for any additional questions or remarks. Thank you.

Well, thanks everyone for joining this morning. As you can probably see, we're really pleased with that step up in our UK branded performance in Q2. As I say, driven by that Strong Sweet Treats performance continuing, but also our grocery business popping back up after the hot weather started to ease. And as you've seen, we continue to make good progress against the five strategic pillars. which we will continue to drive. And the aim at the end of the day is to scale up Premier Foods and make it into a much bigger business than the one we've got today. So thank you very much.