Premier Foods plc

Hello and welcome everyone to the Premier Foods quarter one trading update analyst conference call. My name is Becky and I will be your operator today. All lines will be muted throughout the presentation portion of the call with the chance for Q&A at the end. If you wish to ask a question in this time, please press start followed by one on your telephone keypad. I will now hand over to our host Alex Whitehouse to begin. Please go ahead.

Thank you very much and good morning everyone. Thank you for joining this, which is our quarter one training update call and that comes 13 weeks to the 27th of June this year. As usual, I'm joined on the call this morning by Duncan Leggett, our CFO. I'll start by giving a few headlines on our training in the quarter and then we'll go into a few key areas to provide a bit more detail before as usual passing to you for questions, taking that one practice. and also as a reminder we're holding our AGM at 11 o'clock this morning which as usual we're hosting in our offices here in St Holden's so if any shareholders would like to attend and don't yet have the details please do contact Richard Cullen in Investor Relations for details of how to attend. So on to the quarter one results then. Firstly I am pleased to say that once again we've grown our branded sales ahead of the market that's up 4% and so further increased our market shares and this was led by a particularly strong performance by our branded fruit treats and with our biggest brand, Mr Kippering, delivering especially strong growth. Now overall our group sales increased by 2.7% and our UK branded sales increased by 3.8% and that was led by our strong innovation programme. So the strong branded growth is partly offset there by further right-sizing of our less profitable non-branded business. I'm pleased to say that we're on track at this early stage in the year and with our trading profit expectations for the year unchanged. I'll take you through some of the progress we've made in the first quarter but before I do that I just wanted to remind you of the branded growth model which is the core of what we do and is the reason why we've been able to deliver such consistent long performance over an extended period of time there. now firstly we're lucky to have a portfolio of really strong brands which are leaders in their categories and have got very high household penetration but then we spend a lot of time and effort talking to and listening very carefully to our consumers so that we can create and bring to market insightful new products which are based on common consumer needs and trends and which include things like premiumization and better for you options we don't support many of our brands with emotionally engaging advertising and impactful marketing campaigns to maintain that strong awareness of our brand and keeping contemporary and relevant. And then we also use digital channels to enhance our connection with younger audiences. And finally, but very importantly, we work closely with our key retail partners to deliver category growth and deliver excellent institutional execution for our brand. And it's this plan of growth model that underpins our five pillar growth strategy where we continue to make strong progress in all of the pillars and I'll come back to that shortly. So if we kick off with sweet treats first then well we've had another really great quarter here with branded sales up by 6.6% and that was led by Mr Kipling which has grown by another 9% this period and this trend means that our branded sweet treats have now grown on average by 8% for the last 11 quarters which is clearly a very consistent strong performance and a significant part of this growth has been driven by the quality of the innovation program which As I said, there's a major part of our brand of growth model and overall strategy. However, I can also point out that the underlying core product ranges also continue to perform very strongly as well. And we talked back in May about those sweet treats and product ranges which we launched relatively recently. And this quarter we've introduced further new products including birthday cake slices. which builds on the already successful birthday cake tarts and you might remember these birthday cake tarts were inspired by a trend that we've seen in the US for birthday templates of flavour and these are selling really very well indeed and so we've extended the idea into our cake slicers which is of course our best-selling cake formats and we've also launched a new range of Mr Kipling world including some modern flavours like custom cream which will appeal to younger consumers Now these new ranges add to the policy innovation we launched last year, particularly Mr Kipling's ton of cake lights, which are perfect for sharing or for those wishing to control portion size, and also the Mr Kipling breakfast banks. Now if we move on to the grocery business then, our grocery branded sales increased by 3% compared to last year, and similarly to the free treats business we launched a series of new products based on current consumer trends, and this includes an ambrosia of customers. in pouches and which are a convenient option the perfect for lunch boxes they contain just 100 calories a pouch and we also introduced Lloyd Grossman premium cooking source kits which is the same format as the five-step to a three-step kit to bring Italian restaurant quality meals into the home and we've also brought to market knitting tans and meals in a pot and these are a complete nutrition product range which are nutrient dense they contain over 20 grams of protein per pot and 26 essential vitamins and minerals and they can be particularly helpful for those using GLP-1s. In addition to those waters I've just outlined we also deliver very good growth from some ranges that we introduced last year and in particular I call out off-road bone broth and angel delight bubble jelly which were significant contributors to both sales and growth and Cher Games for those brands. Moving to the non-branded part of the business, in sweet treats non-branded sales increased by 5.3% due to some stronger volumes on ties and paths and a contract win for Case Grocers. At the moment we expect our non-branded sweet treats to now deliver modest growth across the year. Non-branded grocery sales were 2.5 million lower in the course and I've said before we continue to right side this part of the business and so have access to some further contracts which impact the shape of the numbers in the quarter. We do actually expect the trend in growth to improve as we go through the year. Now as I've said before, whilst these non-branded contracts can be a bit lumpy, our target over the museum term is for these parts of the business to be flat or possibly deliver some modest low single digit growth and timing wise I'd expect it to take place in sweet trees before grocery which is what we're now starting to see. As we look more widely at the other strategic pillars we've continued to make some encouraging progress and the next pillar is investment in our infrastructure and we haven't provided an update on this today as this is just a training update however we do remain on track to invest somewhere between 55 and 60 million in capex this year and by way of a reminder this part of our strategy enables us to drive improved efficiency and automation for our supply chain and enhancing our great margins which means we can reinvest back into brand new investments. Now moving into new categories, I'm pleased to say we've continued the momentum here with sales increasing 16% compared to last year, so further good progress, especially when set against last year's comparative when sales in those new categories grew by 38%. This course I'd call out Kate Herb and Spice as a particularly strong performer, which as I've mentioned before, has become an established presence in the market. It's great for bringing flavour to liven up a wide range of dishes, so poultry, fish, salads and ribs. and also across mid-week evening meals but also the barbecue season. This helps to reduce the seasonality and sensitivity of our grocery business. Growth from new categories also included full 10k yoghurt and granola which we launched last year and is in the chill wrap and this is a pot of protein enriched yoghurt with a lid containing some of our market leading full 10k granola which you sprinkle on top or which you can mix in. If now we move on to international, as I've said before our focus markets are Australasia, North America and EMEA and within these target markets we're commonly focused on Mr Kipling, Charles and the Spice Tailor but now also Shilpan K. And in the first quarter overseas sales at constant currency grew by 6% and then actually 7% on a reported basis. Now in the 15th rule at first then where we increased sales in double digits in the quarter It's been very pleasing to see the encouraging staff for the launch of Fuel 10K, where we're in Italy, the Netherlands, Germany and France. And the Netherlands is where we've achieved the most significant distribution, with both Vanilla and Povish parts ranges listed in Albert High, and we've supported the launch with some social media, and as I say, it's got to be an encouraging start. In North America, sales also grew in double digits. Canada saw increased sales of the Spice Tailor while in the US we saw very strong growth compared to last year due to the new distribution from Mr Kipling's Spices and Pies which took place in the second half last year as well as some more recent listings In Australia sales of the Spice Tailor grew over 20% as it benefited from a multi-channel marketing campaign which actually included TV advertising in addition to an immersive retail experience in one of Australia's largest shopping centres. And we do this because we know that once people try the Spice Tailor, they do really like it and they tend to come back and make it a regular purchase. So our focus is on increasing consumer awareness. And then in case, in Australia we saw sales stabilise as retailer stockholding levels began to normalise. and then just as a reminder our final strategic growth goal is to look for inorganic opportunities where we can deliver further growth by leveraging the strength of our branded growth model and then you know we're looking at acquiring future focused brands which have significant further future potential to scale up and deliver high growth for many years ahead and following that trend all three of the brands we've acquired since we stepped out on this strategy that's the Spice Tailor, True 10k and Merchant Lawrate they've all again grown sales in double digits this quarter which we're really very pleased with and Merkin Gourmet enjoys widespread growth across all its range especially from some of its new launches including the new gourmet baked beans and Shulton K also continues to progress very strongly as well and we've mentioned before that we have the number one granola products in the UK market with our flagship chocolate granola but that continues to be the case and in fact we've strengthened that further and take a more market share in the granola category. So another very strong performance from the brand. And then in terms of the spice tailor, the core Indian kit range performed particularly strongly and the brand also then growing failed in the tea percentages in quarter one. 2024 will continue to explore further inorganic opportunities and where we believe we can add value by applying our brand of growth model. and we're looking for high growth future focused brands and of course we do now have some greater flexibility in terms of the size of opportunities we can consider given the size of our balance sheet however and also as we've said before we are quite picky and we'll update you once we've got anything more we can share on that. So in summary we're on track and our trading profit expectations for the financial year are unchanged. and it's particularly pleasing to see the good progress across the pillars of the growth strategy and in particular the roles that our recently acquired brands are playing in accelerating overall group growth. As we look forward to the rest of the year we'll continue to drive performance across all of those five pillars of our strategy and to leverage the strength of our brand and growth model. As usual of course we'll be continuing to support our brands as well as bringing a number of new products to market in the UK. and also building our brands overseas. And over the medium term, we expect to continue to build the business by making strong progress against that five pillar strategic growth strategy. So look, thank you very much again for your time today. I'll now pass back to the operator and we'd be very happy to take any questions.

Thank you. If you wish to ask a question, please press start followed by one on your telephone keypad now. If your question has been answered, or for any reason you would like to remove yourself from the queue, please press Start followed by T. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Charles Hall from Pill Hunt. Your line is now open. Please go ahead.

Morning Alex, morning Duncan. Can I just report on... Morning. Can I just ask on Ireland, what was the impact in the quarter from that change from a distributor to direct retail? Was it just in that quarter? Presumably it doesn't affect ongoing sales. And just give a bit more colour around that, that would be great, please.

sure thanks yeah so what we've done is we've had a historic relationship with one of the retailers in Ireland and significant one as well where we've gone to a distributor which isn't particularly efficient so we've now moved back to direct delivery relationship which obviously is more efficient saves us some money and gives a bit more control so there's a one-off impact as we run down the stocks that were in the distributive warehouse. If you think about it that way, they have that stock. The graphic right is a one-off. It only affects the first quarter of this year. And I think from an impact point of view, you know, think about it as a couple of million or so of sales. And that would be perfectly grounded, to be fair.

Yeah, that is perfect. And then one other, can you just, Give an update on input costs and pricing. I think when you last talked about it, it's a little bit higher, but not looking to change pricing. Has that changed at all?

A similar picture, although obviously we're very aware of what's happening. When we thought we'd got to see farther, things have dissipated on us. So we'll keep having faith in that. If we need to take some action, then we'll do so. But at the moment, it doesn't look like we need to.

Thank you. Our next question comes from Andrew Wade from Jefferies. Your line is now open. Please go ahead.

Hello there. A couple of questions for me. First one on innovation and new product development. I'm just sort of interested as to, you know, the cadence of it seems to have stepped up or intensified. I don't know whether that's just a perception thing or I'm deceiving you or you're sort of explaining it in more detail but it really seems like there's been some quite big wins there on the product development and innovation side. Is that putting a bit more into it or is that sort of it's the way it's always been and if it's stepped down can we sort of see that continue at the same level? That's the first one.

Good morning Andy. Good question actually and quite observant as well because yes there is a subtle change here that's something we've been working on for a few years. It takes a little while for these things to filter through. So whilst we might not have more MPD in absolute terms, in fact there might even be a little bit less, what we've been focusing on is coming up with ideas which have got overall greater scale-up possibilities. So when you think of things like Oxo Bane Broth, that's something that we expect to be able to scale and be worth several million pounds of turnover, as opposed to doing lots of little things. And similarly with the innovation that we've talked about on Sweet Treats. like the breakfast bakes which you know target a different time of the day they're very specifically intended to be entirely incremental to the rest of the picketing business which is generally from lunchtime onwards so there is a subtle change there and it's really about it's really about scale interesting thanks very much

and then the second one I was going to ask, on the non-branded grocery side of things, that was obviously a bit light of, well, well, certainly well as expected and I think past others as well. Obviously not too much of a concern given it's sort of not a strategic strategy and it was relatively low margin. But I'm sort of interested as to, you know, you're obviously still very happy with consensus trade and profit expectations. Is it just that sort of that revenue is such a low margin it doesn't have much impact or are you sort of Thank you for joining us today.

relatively hollow revenue that we're getting out of so therefore no impact on on trading profit if you look at the journey we've been on on that particularly on groceries you know we've now got a smaller non-branded business but a significantly more profitable one which is exactly what we're trying to achieve now from that base you know that's something that we can now move forward on and start to, as you've seen on Sweet Tweets, actually getting a bit of modest grace out of it because we're kind of happy where we've got to. It's just going to take a little bit longer to sort of finish the journey on gracefully. But yeah, I expect that to start to flatten out and eventually maybe get into a little bit of modest grace as we are on Sweet Tweets.

Great stuff. Very clear. Thanks, Alex.

Thank you. Just as a reminder, if you did want to ask a question, please press star followed by one on your telephone keypad now. Our next question comes from Matthew Webb from Investec. Your line is now open. Please go ahead.

Thank you. Good morning, everyone. The first question is just on the impact of the timing of Easter. I don't think you mentioned it in the statement, but I'm casting my mind back to the four-year results. I think you'd said that some Sales have been dragged into Q426 out of this quarter due to the early Easter. I just wonder whether I remembered that correctly and if so, whether you'd be able to, I know it's very difficult to quantify it, but was that enough to move the needle in the horse race stage is my question. That's question one.

Happy morning. Yeah, you're absolutely right. Well remembered. So, yes, you're right. In quarter four, we did say that quarter four had benefited from that changing in Easter timing. And because deliveries tend to go out a few weeks before Easter, obviously to make sure they've got time to get through warehouses and get onto shelves and get put onto displays, it's got benefit in Q4, but obviously that's at the expense of Q1. So we've not particularly mentioned it in the announcement today, but we're absolutely right. Q1, particularly some brand new personal answer tweets would have been stronger if it had been a like-for-like timing release for the course of obviously everything that benefit in Q4.

Got it. And then, second question on international. So the parts of international that you mentioned are all performing strongly, so Europe, North America and, by and large, Australia. but the overall growth was only six up against a relatively weak comp as well I think. Presumably the Australia cake was weak. Could you remind me what's going on there and maybe sort of update on where we are in that part of the business, please?

Yes, your analysis is spot on. So double-digit growth in Europe and North America, growth of SpiceTale in Australia as well but overall Australia was pretty flat and that is that sort of continuation of getting the stock levels right in Australia this was actually the answer here was better than we expected actually because I expected to see more stock come out of the system in Australia than it did and so I think we're now getting to the right levels so therefore you end up with 6% growth even though you've got double digit growth out of Europe and North America because Australia is so much bigger for us and there's so much more in established markets than either Europe or North America so there's a relative size impact going on there but I'm actually feeling pretty good about that stabilisation of stock in Australia. You might remember we said we'd put a logistics person from the UK into our Australian team on the ground to get very close to the retailers and their logistics teams to work through what's the right amount of stock, what should the right frequency of ordering be and we make quite a lot of progress on that so I'm feeling a bit more comfortable with it.

And I'll just follow up on that. If you take the stocking issue out of it, what do you think the underlying performance of the Australian cake business has been looking like in the quarter?

It's a really good question. Someone asked me that yesterday and I don't have the analysis unfortunately. I know that as we went through last year we were seeing really strong growth and I know we've got a nice and I plan this year for the Australian cake business including a load of new products and continued marketing support so I'm not worried about the health if you like of that business although I think it's fair to say it's becoming a more mature business like in the UK but I'm not concerned about that really.

Understood. That's all from me. Thanks very much.

Thank you. As a reminder, if you did want to ask a question on today's call, please press star followed by one on your telephone keypad now. That is star followed by one. We currently have no further questions on the line. I will hand back over to the management team for any final comments.

Thanks very much. Well, thanks for your questions, everybody. I think, you know, obviously, quarter one's not our biggest quarter. We know that that comes later in the year when the money gets due. But nevertheless, we're off to a good start. I'm really pleased with the brand of growth that we've delivered. I'm also pleased with, you know, the plums across the pillars, actually, but good to see the international business, you know, picking back up again, which is mostly what we expect to see. So, overall, we're in a good position. No change for Outlook for the year. Thanks very much.

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