Premier Foods Regulatory News (PFD)

19 May 2021

Premier Foods plc (the "Group" or the "Company")

Adjusted PBT growth of 23.5%, Net debt/EBITDA3 reduced to 1.9x and dividend reinstated after 13 years

Note: Only headline measures are provided on a 52 week basis, to aid comparability of results

· Branded revenue* up +13.6% in full year and ahead +7.0% in Q4

· Trading profit* increased +11.9% to £148.3m after increased marketing investment and incremental Covid costs

· Net debt/EBITDA,3,11 (pre-IFRS 16) reduced to 1.9x, the Group's lowest ever leverage14

· Repaid £190m Floating rate notes in FY20/21 reducing interest costs by c.£10m p.a.; plus ratings agency upgrades

· Combined pensions surplus of £539.9m

· New RCF facility to 2024 and launching offer of new £300m 5 year Senior Secured Fixed Rate Notes

· Proposed final dividend of 1.0 pence per share; reinstated for first time in thirteen years

· Remained fully operational throughout pandemic

· Continued to deploy branded growth model; new product launches and six major brands received TV advertising

· Growing faster than the market; gained +70bps market share

· Online performance +104% and increased market share by 128bps

· Expanded consumer base as households tried new meal ideas

· International revenue growth +23%8, demonstrating strong progress against revised strategy

· Strong ESG progress; reduced CO2 emissions by 43% since 2008 and recyclable plastics increased from 63% to 70%

· Hovis disposal completed in H2, raising gross proceeds of £37.3m

Non-GAAP measures above are defined and reconciled to statutory measures throughout

*Branded revenue and Trading profit on a 52 week basis

A reconciliation between 53 week and 52 week measure is provided in the appendices; EBITDA is EBITDA on an adjusted basis and as defined in the appendices

"This has been an outstanding year for the business with very strong financial metrics across the board. We have reduced our leverage to 1.9x EBITDA3, repaid £190m of our Floating Rate Bonds saving approximately £10m in interest costs and entered into a transformational new pensions agreement. As a result, we are pleased to be reinstating dividend payments for the first time in 13 years. We have also just completed the refinancing of a new Revolving Credit facility with a refreshed bank group, extending maturity to at least 2024, and are today announcing the launch of a new Fixed Rate Bond."

"Throughout the year, we continued to drive our branded growth model, launching a series of new product ranges, including many healthy options such as Sharwood's low sugar stir fry sauces and increasing marketing investment with six of our major brands benefitting from TV advertising. This, along with a robust performance from our supply chain, ensured we delivered growth ahead of the market. Sales of our brands online more than doubled and our continued focus on this channel led to further market share gains. In overseas markets we are now clearly seeing the benefits of last year's change in strategy with double digit growth in each quarter and 23% in the full year."

"We enter this year in a strong position, with the benefit of an expanded consumer base, further TV advertising for our brands and a substantial pipeline of new products planned. We are confident in our Trading profit expectations for the full year and we expect adjusted PBT to benefit from lower financing costs. As we look to the future, with a transformed business in a demonstrably much stronger financial position, we will continue to move forward at pace and with rigour, applying our brand building skills to expand the business. We will do this through entering new categories in the UK, scaling up our overseas businesses and exploring the opportunity for appropriate bolt on acquisitions."

"Finally, and most importantly, I would like to thank our colleagues who have shown incredible resilience and commitment, keeping our operations running, ensuring we were able to keep food supplies flowing to our customers and taking all the necessary actions to keep each other safe."

This announcement contains inside information.

A presentation to investors and analysts will be webcast today at 9:00am BST.

To register for the webcast follow the link: www.premierfoods.co.uk/investors/investor-centre

A recording of the webcast will be available on the Company's website later in the day.

A factsheet with highlights of the Preliminary results is available at:

www.premierfoods.co.uk/investors/results-centre 

A Premier Foods image gallery is available using the following link:

www.premierfoods.co.uk/media/image-gallery/

Contacts:

Institutional investors and analysts:

Duncan Leggett, Chief Financial Officer +44 (0) 1727 815 850

Richard Godden, Director of Investor Relations +44 (0) 1727 815 850

Media enquiries:

Hannah Collyer, Director of Corporate Affairs & ESG +44 (0) 1727 815 850

Headland

Ed Young +44 (0) 7884 666830

Francesca Tuckett +44 (0) 7884 667661

- Ends -

This announcement may contain "forward-looking statements" that are based on estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements are all statements other than statements of historical fact or statements in the present tense, and can be identified by words such as "targets", "aims", "aspires", "assumes", "believes", "estimates", "anticipates", "expects", "intends", "hopes", "may", "would", "should", "could", "will", "plans", "predicts" and "potential", as well as the negatives of these terms and other words of similar meaning. Any forward-looking statements in this announcement are made based upon Premier Foods' estimates, expectations and beliefs concerning future events affecting the Group and subject to a number of known and unknown risks and uncertainties. Such forward-looking statements are based on numerous assumptions regarding the Premier Foods Group's present and future business strategies and the environment in which it will operate, which may prove not to be accurate. Premier Foods cautions that these forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in these forward-looking statements. Undue reliance should, therefore, not be placed on such forward-looking statements. Any forward-looking statements contained in this announcement apply only as at the date of this announcement and are not intended to give any assurance as to future results. Premier Foods will update this announcement as required by applicable law, including the Prospectus Rules, the Listing Rules, the Disclosure and Transparency Rules, London Stock Exchange and any other applicable law or regulations, but otherwise expressly disclaims any obligation or undertaking to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. Any securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933 and may not be offered or sold within the United States absent registration or an applicable exemption from registration requirements. There will be no offering of the Securities in the United States.

The Group is committed to doing business responsibly and in a way that is sustainable for the business, its communities and the planet. It has a five pillar responsibility strategy which enables it to focus efforts on addressing the issues that are most relevant to people and the planet, now and in the future. These five pillars are: (i) encourage healthier choices; (ii) realise people's potential; (iii) support our communities; (iv) drive ethical sourcing and (v) reduce our environmental footprint. The Group delivered strong progress in all its ESG pillars during the year which includes:

· Healthier choices: 17 new better for you ranges were introduced in the year

· Realise people's potential: Featured in the Top 100 apprenticeship employers for 4th year in succession

· Ethical sourcing: 100% of its direct sourced soya now meets Round Table Resourced Soy (RTRS) requirements

· Supporting communities: Donated over 550,000 meals via Fareshare and 238,000 products to the NHS

· Reducing the Group's environmental footprint: CO2 emissions reduced by 5.8% since last year and are now 42.7% lower than the 2008 baseline. Percentage of recyclable plastics increased from 63% to 70%.

On 5 May 2021, the Group appointed Hannah Collyer as Director of Corporate Affairs and ESG, to the executive leadership team of the Group, reporting to CEO Alex Whitehouse. This newly created role reflects the increased strategic importance of ESG issues to the business and the growing significance of sustainability in its fullest sense across the Group.

In the face of this pandemic, the business has proven to be robust and resilient, with colleagues demonstrating great resolve at home and at work, meeting unprecedented levels of consumer demand for the Group's brands, whilst adopting new Covid-safe ways of working. The Group's response to this crisis can be summarised as follows:

· Health and wellbeing of colleagues has been paramount

· Early implementation of enhanced hygiene protocols and social distancing measures in February 2020

· Manufacturing and logistics operations remained fully operational, ensuring continuity of food supply

· Donated 550,000 meals through charitable food redistributor, Fareshare and 238,000 products to NHS

· Continued to focus on the core business model, increasing brand investment and further innovation plans

The Group goes into FY21/22 in a strong position, having gained a significantly larger consumer base during the past year. The business will continue to employ its successful branded growth model, with further new product launches planned and six of its largest brands due to benefit from TV advertising in FY21/22. It expects to deliver further progress overseas as it applies these strategies in its key international markets.

Initial trading this year is in line with the Group's expectations, reflecting the ongoing strength of its growth strategy, set against a period of strong comparatives. The Board is confident in the delivery of its full year profit expectations, and is set to benefit from substantially lower financing costs. As the Group transitions to the next phase of its evolution, it will look to expand through accessing new categories in the UK and also in selected overseas markets, while exploring bolt-on acquisition opportunities. It continues to target 1.5x Net debt/EBITDA3 in the medium term.

Revenue

Group revenue for the 53 weeks to 3 April 2021 was £947.0m, an increase of £99.9m compared to the 52 weeks ended 28 March 2020.

On a 52 week basis, Group revenue increased by +10.3% to £934.2m; Branded revenue grew by +13.6% while Non-branded revenue was (6.3%) lower. In the fourth quarter, on a 13 week comparative basis, Group revenue increase by +4.0% to £226.9m and branded revenues increased by +7.0%. In the year, the Group's branded mix advanced by 250 basis points to 85.8% on a 52 week basis.

The Group saw a prolonged period of elevated demand for its product ranges, as consumers were restricted to eating all meals at home due to the closure of hospitality outlets for long periods. The supply chain demonstrated its robustness through meeting these volumes and in doing so, kept product availability high. This, together with continued new product launches and brand investment, resulted in 70 basis points of market share gain in the year. Overall, the Group's consumer base expanded this year, as a result of more people cooking from home, experimenting with new recipes and expanding their repertoire of meals.

Grocery

Grocery revenue for the 53 week financial year was £702.6m, of which £609.3m was branded revenue and £93.3m Non-branded. On a 52 week basis, Grocery revenue increased by 13.4% to £693.4m, led by its branded portfolio which grew by 16.9% to £601.7m. The fourth quarter saw revenues grow by 3.6% to £172.4m with brands up by 6.8%. The grocery portfolio gained 32 basis points of value share in the year, growing faster than a market which increased by 12.3%.

In FY20/21, the Group's Grocery brands benefitted from the Group's innovation strategy and increasing consumer marketing investment behind emotionally engaging advertising. A significant driver of increased volumes in the year was due to consumers eating more meals at home due to pandemic related restrictions on eating out of home; consequently many of the major Grocery brands grew in strong double-digit terms, with Bisto, Oxo, Ambrosia, Sharwood's, Homepride, Paxo and Nissin all stand out performers. Additionally, the increase in cooking at home, with consumers expanding their repertoire of meals has resulted in a significant increase in household penetration of brands such as Bisto, Oxo, Sharwood's and Paxo, which all attracted approximately a million or more new households buying their product ranges.

New product development in the year was led by better for your options such as Sharwood's 30% less sugar cooking sauce pouches, 30% less fat Butter Chicken sauces and low-fat Naan breads. Oxo launched meat free Beef flavoured stock cubes, suitable for a vegan diet. The Group became the UK's sole distributor for the high quality Cape Herb and Spice range, which highlights the extension of the Group into a new sub-category. Other new products brought to market this year include Bisto Southern style gravy, which provides consumers with the opportunity to replicate takeaways at home following the fakeaway trend.

The Group's five largest Grocery brands; Ambrosia, Batchelors, Bisto, Sharwood's and Oxo received an aggregate 58 weeks of advertising on television during the year. Ambrosia and Sharwood's both benefitted from advertising for the first time in four and five years respectively, each with new production copy designed to build an emotional engagement with consumers.

The online market grew rapidly in H1 and broadly maintained this elevated level through the second half of the year. The Group's categories have grown ahead of this, with sales increasing by +104%, equating to a market share gain of 128 basis points. The Group has been developing its online capabilities over the last three years, increasing resource in this area to ensure maximum benefits from the growth potential in this channel. This includes ensuring the Group's brands are promoted and displayed using pertinent techniques for the online channel.

Looking ahead to FY21/22, the Grocery business will continue to launch a number of new product ranges as part of its healthier choices strategy. For example, it will be launching a Deliciously Vegan range of Sharwood's Indian cooking sauces and 30% less fat Loyd Grossman lasagne sauces. Other new product ranges include Oxo marinades and rubs, Bisto Creamy pepper sauce and Bird's convenient custard pots. The new Cape Herb and Spice range of rubs, chilli tins and seasonings, as described above, will expand to further distribution.

Additionally, the Group is planning to advertise all five of its largest Grocery brands during the course of the next financial year.

Sweet Treats

Sweet Treats revenue was £244.4m in the 53 weeks to 3 April 2021; branded revenue was £203.2m and Non-branded revenues £41.2m. On a 52 week basis, Sweet Treats revenue increased by 2.2% to £240.8m. Branded revenue saw growth of 4.7% in a declining cake market, which reflected fewer celebration occasions, while Non-branded revenue was 8.4% lower. The fourth quarter saw an acceleration in revenue growth, as total revenue in Sweet Treats increased by 5.4% on a 13 week comparable basis. Branded revenue was the driver of this growth, as revenue grew by 7.7%; well ahead of the wider cake market.

Market share of the Group's cake brands grew by 113 basis points in a market which declined by 2.3%, while Household penetration increased by a very strong 193 basis points.

After a muted start to the year, when consumers and customers focused heavily on staple items, both Mr Kipling and Cadbury cake enjoyed a strong year of revenue growth. Mr Kipling, the Group's largest brand, reached revenue of £150m for the first time in its history, benefitting from 25 weeks of TV advertising in the year, increased sales of its reduced sugar slices ranges and expansion of its premium Signature collection. Cadbury cake sales were supported by the launch of Crunchie and Fudge cake bars, while the core Mini Rolls delivered robust volumes through the year. The Group maintains its longstanding relationship with Cadbury owner, Mondelēz International; its licence for cake and ambient desserts is due to run until 2025.

In the coming months, the Group will be investing in further TV advertising for Mr Kipling, while FY21/22 sees the launch of Mr Kipling Choc Tarts. Sweet Treats will also benefit from the full year effect of new products launched in the prior year, such as the new Cadbury Crunchie and Fudge cake bars and expanded Mr Kipling Signature collection.

International

The International business enjoyed a strong year, as it began to reap the benefits of its revised strategy, with revenue at constant currency up 23%8 compared to the prior year on a 52 week basis. This revamped approach is designed to deliver sustainable profitable growth as evidenced in the UK and is led by a new Head of International. The business has moved to a new organisational structure where locally based market heads have replaced function heads; a switch of resources from the UK to relevant markets. There is now a change of emphasis underpinned by strong focus on in-market execution, which involves ensuring the right products are presented to the shopper at the right price, combined with an optimum promotional strategy. Route to market solutions include using carefully chosen local partners with appropriate capabilities.

Revenue in FY20/21 grew in double digit percentage terms compared to the prior year in each four quarters of the year. In Ireland, all major brands displayed growth, some of which reflected increased at home consumption during the pandemic, in a similar way to the UK. In the second half of the year, Ireland saw the launch of new products such as the Mr Kipling Signature range and Soba Noodle pots and TV advertising for Bisto and Mr Kipling. These activities are the first examples of how the International business is applying the established and proven branded growth model from the UK to its overseas markets. Australia saw a similar approach; Mr Kipling aired on Australian TV in the fourth quarter and new product launches included Sharwood's low fat cooking sauces and Mr Kipling Chocolate & Cherry slices. A new head of market for Australia, now country and not UK based, was appointed in the year alongside a new team with strong local market consumer sector backgrounds.

The USA saw very strong revenue growth in the year which reflected significantly improved in market execution for Sharwood's, achieving 3,000 new distribution points. In the fourth quarter, the Group signed a new agreement with Weston Foods to sell and market Mr Kipling cakes in the USA. The first shipments of cake are expected to commence in the first half of FY21/22, which will follow the confirmation of a preferred lead customer.

Non-branded

On a 52 week basis, Grocery Non-branded revenue declined (5.3%) in the year while Sweet Treats revenue fell by (8.4%). Grocery saw an increase in volume and revenue for its retailer brand contracts, but this was more than offset by a fall in revenue for business to business units such as Knighton Foods and Charnwood Foods due to reduced eating out of home throughout the year. In Sweet Treats, the sales decline reflected contract exits for retailer brand cake and lower volumes in the discounter channel; these effects are expected to unwind in the second half of FY21/22.

Trading profit

The Group delivered Trading profit of £151.3m in FY20/21. This comprised Divisional contribution of £197.9m less costs of Group & corporate related activity of £46.6m. On a 52 week basis, Trading profit in FY20/21 was £148.3m, an 11.9% increase on the prior year. Divisional contribution grew by +13.4% on the same basis, reflecting strong growth in the Grocery business of +16.4%, partly offset by a reduction in Sweet Treats Divisional contribution of £22.4m which was 5.5% lower.

Grocery benefitted from strong performances across its branded portfolio, as the substantial increase in volumes saw benefits of operational leverage feed through to Divisional contribution. This effect more than offset incremental supply chain costs incurred during the year associated with enhanced hygiene and social distancing measures and temporary labour as a result of the Covid-19 pandemic. Additionally, the Group increased its consumer marketing expenditure with Ambrosia, Batchelors, Bisto, Sharwood's and Oxo all recipients of television advertising in the year. This reflects one of the key pillars of the Group's branded growth model strategy of delivering emotionally engaging advertising. In the first half of the year, the Group also benefitted from generally lower market rates for media slots and accordingly was able to purchase more television advertising time than expected, however these lower market rates dissipated in the second half.

In Sweet Treats, Divisional contribution was £1.3m lower than the prior year. Divisional contribution was impacted by incremental Covid-19 related costs in a similar way to the Grocery business, although the requirements for additional social distancing measures and increased temporary labour due to higher absence was more evident in Sweet Treats than Grocery. Additionally, with less pronounced volume uplifts in Sweet Treats compared to Grocery, limited operational leverage benefits were offset by these incremental pandemic related costs. Marketing investment for Mr Kipling was higher in the year, as the Group's largest brands benefitted from 25 weeks on air of the popular 'Little Thief' television advert.

Group & corporate costs increased by £7.3m in the period to £46.6m. This was largely as a result of higher Group wider management incentive schemes costs, covering a large section of the Group's workforce.

The Group will continue to invest strongly behind its brands in FY21/22 as it did in FY20/21, with six of the Group's largest brands in line to benefit from media advertising. Mr Kipling and Bisto are planned to benefit from new advertising creative.

As the Group enters this year, it has been closely monitoring movements in commodity markets. The recent increase in some input costs are not unexpected and follow a period of relatively benign input cost inflation. The business has planned for these changes, and will use a range of measures to ensure any impacts are offset.

Operating profit

Operating profit increased by £57.3m, to £152.6m in the year. This growth reflected the Trading profit performance as described above, a positive movement in the net interest on pensions and administrative expenses and the sale of the Group's Hovis investment in the second half of the year.

Amortisation of intangible assets was £30.4m in the year compared to £29.4m in FY19/20. Fair valuation of foreign exchange and derivatives resulted in an adverse movement of £2.3m. Non-trading restructuring costs increased by £0.8m to £4.9m in FY20/21. This increase was due to costs associated with advisory work on the segregated merger pensions agreement announced on 20 April 2020, integration of the Knighton Foods business. The November 2020 Guaranteed Minimum Pensions (GMP) high court judgement ruled that pension scheme trustees are also legally responsible for equalising the GMP for the employees who transferred out of UK defined benefit pension schemes. Accordingly, there is a requirement to revisit historic cash equivalent transfer values that were previously not equalised and make adjustments where necessary and a non-cash charge of £2.9m in the year reflects past service costs associated with this equalisation.

Net interest on pensions and administrative expenses was £9.7m, which includes expenses for operating the Group's pension schemes of £10.7m, offset by a net interest credit of £14.4m. Also included is a credit of £9.3m related to a Wind Up Lumpsum exercise as part of the scheme merger and a charge of £3.3m which reflects settlement costs associated with enhanced transfer value payments made to certain RHM scheme deferred members.

An impairment reversal of £15.7m was recognised in the period in respect of the Hovis loan note previously written off, reflecting the reassessment of the loan note's recoverability. A profit on disposal of £16.9m was recognised as result of the sale of the Hovis investment.

Finance costs

Note: 52 week basis not applied for Write off of financing costs, Discount unwind, Other finance cost and Other finance income

Net finance cost was £29.8m in the year to the 53 weeks ended 3 April 2021, a decrease of £11.9m compared to FY19/20. Net regular interest was £33.4m in the year and £33.0m on a 52 week basis. This compares to £39.3m in the comparative period. The reduction in net regular interest in the year was primarily due to lower Senior secured notes interest charges, principally due to four partial redemptions of the Group's Floating Rate Notes (FRN) which completed at different points during the year, and are outlined in the table below.

Bank debt interest decreased by £0.4m to £4.6m in the year and amortisation of debt issuance costs were also £0.4m lower. The Revolving Credit Facility (RCF) was undrawn at the year end.

Following the partial redemptions of the FRN during the year, write off of financing fees amounting to £1.3m were incurred in the year. A credit of £1.1m in the year related to a discount unwind associated with properties held by the Group. Other finance income of £4.7m relates to the reversal of the impairment of the interest on the Hovis loan note.

Taxation

A tax charge in the year of £16.8m compared to £7.1m in the prior year. The current year reflects a charge of £23.3m on profit before tax at the rate of 19% and a capital gain of £6.6m relating to the disposal of the Hovis investment.

At 3 April 2021, deferred tax assets were £28.4m (28 March 2020: nil) while a deferred tax liability of £85.8m is a decrease of £99.1m compared to the prior year position and reflects a reduction in the combined pensions surplus.

The Group currently retains brought forward losses which it can utilise to offset against future tax liabilities. Due to changes in tax legislation with respect to tax shields, the Group expects to recommence paying cash tax in low single digit £millions in the medium term.

Earnings per share

The Group reported a profit before tax of £122.8m in the year, an increase of £69.2m compared to FY19/20. Profit after tax in the year grew by £59.5m from £46.5m to £106.0m. Basic earnings per share in FY20/21 increased by 7.0p to 12.5p.

Adjusted profit before tax on a 52 week comparable basis increased by 23.5% in the year to £115.3m, reflecting both Trading profit growth in the period and lower net regular interest costs as described above. Adjusted profit after tax also increased, by 23.5%, to £93.4m in the year after deducting a notional 19.0% tax charge of £21.9m. Based on average shares in issue of 851.3 million shares, adjusted earnings per share for the 52 week comparable basis grew +22.8% to 11.0p.

Hovis

In April 2014, the Group entered into a partnership with The Gores Group LLC in respect of Hovis Holdings Limited ("Hovis"). This partnership, of which the Group held a 49% equity interest, was subsequently written off in FY 2015/16. On 5 November 2020, the Group completed the sale of its interest in Hovis to Endless LLP. As part of the sale, the group has received a total consideration of £37.3m, of which £16.9m was in respect of equity and £20.4m reflected the settlement of the outstanding loan to associate.

Dividend

The Company last paid a dividend to shareholders in 2008. Over recent years, the Company has made significant progress in delivering against its branded growth model strategy and so in turn, reducing Net debt to a level that would enable the payment of a dividend under the Group's financing arrangements. In February 2021, the Company completed a capital reduction which will provide greater flexibility in how the Company manages its capital resources going forward. Subject to shareholder approval, the directors have proposed a final dividend of 1.0 pence for the 53 weeks ended 3 April 2021 (2019/20: nil), payable on 30 July 2021 to shareholders on the register at the close of business on 2 July 2021. The shares will go ex-dividend on 1 July 2021. Under the dividend matching agreement with the Company's pension schemes, for up to £5 million paid to shareholders as a dividend, a payment of 50 pence for every £1 paid to shareholders is payable to the pension schemes. For any dividend paid between £5m and £10m, there is no matching payment made to the pensions schemes and for any dividend paid above £10m, the 50 pence: £1 matching arrangement, as described above, recommences.

Free cash flow

On a statutory basis, cash generated from operations was £118.2m compared to £121.5m in the comparative period. Cash generated from operating activities was £85.6m after deducting net interest paid of £32.6m. Cash generated from investing activities was £13.8m compared to £18.0m used in the prior year. This reflected proceeds received from the Group's Hovis investment, partly offset by the purchase of tangible and intangible assets of £23.6m. Cash used in financing activities was (£276.2m) in the year versus £82.2m cash generated in the prior year; the difference was due to two main actions. Firstly, the Group repaid a drawdown of £85.0m on its committed revolving credit facility in the first quarter of the year. This followed an earlier prudent decision by the Group at the end of the previous financial year to draw this £85.0m sum, reflecting early stage wider uncertainties associated with the COVID-19 pandemic. Secondly, the Group repaid £190.0m part redemptions of its Senior Secured Floating Rate Notes during the year. Cash and cash equivalents of £1.1m at the year end comprised a bank overdraft of £3.1m and cash and bank deposits of £4.2m.

The Group reported an inflow of Free cash in the year of £98.2m compared to £65.1m in the previous year. Trading profit of £151.3m on a 53 week basis was £18.7m ahead of the prior year for the reasons outlined above, while depreciation was slightly lower at £19.1m (FY19/20: £19.9m). Other non-cash items of £3.4m was due primarily to share based payments.

Net interest paid of £32.6m was £3.0m lower than the prior year, due to part redemptions of the Group's Senior Secured Floating Rate Notes during the year which attract a coupon of 5.0% above LIBOR. The Group expects interest paid to continue to reduce in FY21/22 as the full year impact of these part redemptions take effect. Additionally, and as announced today, the Group is planning to issue new Senior Secured Fixed Rate Notes which are expected to replace its existing Fixed Rate Notes which currently attract a 6.25% interest rate.

Total pension contributions in the period were £47.0m (2019/20: £44.7m), due to previously agreed planned increases in deficit contribution payments to the Premier Foods pension scheme. Of this, pension deficit contribution payments were £39.1m and administration costs including pension levy costs were £7.9m.

Capital expenditure in the year was £23.6m, in line with expectations and higher than FY19/20. The Group expects to continue investing at least £25m per annum in capital expenditure as it funds growth projects supporting the Group's innovation strategy and cost release projects to deliver efficiency savings. Both these areas of capital investment offer attractive payback returns and accordingly are a key factor in the Group's assessment of capital allocation.

Following the completion of the sale of the Group's Hovis investment to Endless LLP, as described above, cash proceeds of £37.3m were received on 5 November 2020. This was partly offset by a £7.0m share of proceeds made to the Group's pension schemes.

A working capital inflow of £0.6m compared to an inflow of £14.6m in the prior year. The prior year position was due to unusually low stock holding levels as the Group experienced higher than expected demand from its retail customers in the final three weeks of the financial year due to impacts associated with COVID-19. Non-trading items of £5.1m were paid in the year and comprise the final tranche of advisory costs associated with the Group's strategic review and costs relating to restructuring of both the International and Knighton businesses.

Net debt and sources of finance

Net debt at 3 April 2021 was £332.7m, a reduction of £96.9m compared to the prior year while on a pre-IFRS 16 basis, Net debt was £314.1m, £94.0m lower than the comparative period. Free cash inflow in the period was £98.2m and the movement in debt issuance costs was £4.2m. On a pre-IFRS 16 Leases basis, Net debt / EBITDA3 was 1.9x; while on a reported basis, Net debt / EBITDA3 was 2.0x.

There were no changes to the Group's committed bank lending facilities in the year. As at 3 April 2021, the Group held net cash and bank deposits of £1.1m. At the start of the financial year the Group held in issue £300m Senior Secured Fixed Rate Notes maturing October 2023 and £210m Senior Secured Floating Rate Notes ("FRN") maturing July 2022. With the Group's strong progress in cash generation and debt reduction during the last two years, it redeemed £190m of the original £210m outstanding FRN during FY20/21 at par.

The Group has today announced the proposed issue of new five year £300m Senior Secured fixed rate notes due 2026, to refinance its £300m existing Senior Secured fixed rate notes, due to mature October 2023. Pricing of the new £300m Senior Secured fixed rate notes is to be confirmed and the notes are expected to be callable after two years.

The Group has also entered into a new revolving credit facility (RCF) with an updated lending group for a period of three years from May 2021 with the option of extending for up to two additional years. This new senior secured RCF is a committed facility of £175m with an interest margin grid broadly in line with the previous RCF. The prevailing coupon on the RCF at the year end was 2.75% plus three month LIBOR, although the facility was undrawn. Undrawn elements of the RCF will continue to attract interest equivalent to 35% of the applicable margin. It is expected that the Group's outstanding £20m Senior Secured Floating Rate Notes due July 2022 will be repaid as part of this refinancing.

Pensions

Pensions agreement overview

Following an extensive strategic review which explored all options available to the Group, on 20 April 2020 the Board announced a landmark agreement with its pension schemes which is transformational for both the Group and its pension scheme members, by significantly improving its long standing pension funding situation. In particular, the Board expects this will provide greater funding certainty for Premier Foods pension schemes members by leveraging the strength of the successful RHM pension scheme investment strategy. Alongside the strong progress the Group has delivered through its branded growth model strategy, this new pensions agreement provides the platform for further value creation for all stakeholders. The Group agreed and signed legal documentation with the scheme trustees for the merger, which was implemented as planned on 30 June 2020. A winding up lump sum (WULS) exercise was completed in February 2021. Following the segregated merger, the Group chose to effect a winding up of the Premier Foods Pension Scheme Trustees Limited and the Premier Grocery Products Pension Schemes Trustee Limited which will be completed in 2021. A winding up lump sum (WULS) exercise was completed in February 2021.

IAS 19 results and commentary

The IAS 19 pension schemes valuation reported a surplus for the combined RHM and Premier Foods' pension schemes at 3 April 2021 of £539.9m, £690.5m lower than 28 March 2020. Net of deferred tax, the combined surplus at 3 April 2021 was £437.3m. A deferred tax rate of 19.0% is deducted from the IAS19 retirement benefit valuation of the Group's schemes to reflect the fact that pension deficit contributions made to the Group's pension schemes are allowable for tax.

Assets in the combined schemes at 3 April 2021 were £268.1m lower at £5,251.9m. RHM scheme assets decreased by £285.9m to £4,459.4m while the Premier Foods' schemes assets increased by £17.8m to £792.5m. The reduction in the RHM scheme assets was largely due to a drop in the value of government bonds held by the schemes. At the previous year end, UK 30 year Government gilts were at c.0.6%, however during the year, UK government Gilt yields increased. The pension schemes use hedges to reduce the impact of movements in Gilts on the actuarial valuation, so when gilt yields rise, the asset values of these hedges fall.

Liabilities in the combined schemes increased by £422.4m to £4,712.0m as at 3 April 2021 compared to 28 March 2020. The RHM scheme liabilities increased by £296.9m to £3,536.9m in the year and the Premier Foods scheme liabilities increased by £125.5m to £1,175.1m The main driver of the movement in liabilities was due to a decrease in the discount rate used at 28 March 2020 of 2.5%.

The net present value of future deficit payments, to the end of the respective recovery periods remains at c.£300-320m.

Alex Whitehouse Duncan Leggett

Chief Executive Officer Chief Financial Officer 

The Company's preliminary results are presented for the 53 weeks ended 3 April 2021 and the comparative period, 52 weeks ended 28 March 2020. All references to the 'quarter', unless otherwise stated, are for the 13 weeks ended 27 March 2021 and the comparative period, 13 weeks ended 28 March 20209.

To aid comparability of results, headline results are provided on a 52 week basis and reconciliations provided to a 53 week basis.

The Company uses a number of non-GAAP measures to measure and assess the financial performance of the business. The Directors believe that these non-GAAP measures assist in providing additional useful information on the underlying trends, performance and position of the Group. These non-GAAP measures are used by the Group for reporting and planning purposes and it considers them to be helpful indicators for investors to assist them in assessing the strategic progress of the Group.

1. The Group uses Trading profit to review overall Group profitability. Trading profit is defined as profit/(loss) before tax before net finance costs, amortisation of intangible assets, reversal of impairment loss on financial assets, profit on disposal of investment in associate, non-trading items (items requiring separate disclosure by virtue of their nature in order that users of the financial statements obtain a clear and consistent view of the Group's underlying trading performance), fair value movements on foreign exchange and other derivative contracts and net interest on pensions and administration expenses (defined as the net interest on the pension scheme assets and liabilities, the administrative costs of running the schemes and settlement costs or credits related to the pensions schemes).

2. Divisional contribution refers to Gross Profit less selling, distribution and marketing expenses directly attributable to the relevant business unit.

3. EBITDA means EBITDA on an adjusted basis and is Trading profit as defined in (1) above excluding depreciation.

4. Adjusted profit before tax is Trading profit as defined in (1) above less net regular interest.

5. Net regular interest is defined as net finance cost after excluding write-off of financing costs, other interest payable and other finance income.

6. Adjusted profit after tax is Adjusted profit before tax as defined in (4) above less a notional tax charge of 19.0% (2019/20: 19.0%).

7. Adjusted earnings per share is Adjusted profit after tax as defined in (6) above divided by the weighted average of the number of shares of 851.4 million (52 weeks ended 28 March 2020: 846.6 million). On a 52 week basis for the 52 weeks to 27 March 2021, weighted average number of shares was 851.3 million.

8. International sales remove the impact of foreign currency fluctuations and adjusts prior year sales to ensure comparability in geographic market destinations. The constant currency calculation is made by adjusting the current year's sales to the same exchange rate as the prior year.

9. Net debt is defined as total borrowings, less cash and cash equivalents and less capitalised debt issuance costs.

10. Free cash flow is defined as the change in Net debt as defined in (9) above before the movement in debt issuance costs.

11. Net debt on a pre-IFRS 16 basis, which excludes lease liabilities.

12. Assumptions on future deficit contributions subject to: (i) Investment returns of RHM scheme; (ii) no change to deficit recovery period length. Also subject to future actuarial valuations and associated negotiations.

13. EBITDA on a rolling 12 month basis

14. Historical Net debt/EBITDA leverage since public listing in July 2004.

Additional notes:

· The Directors believe that users of the financial statements are most interested in underlying trading performance and cash generation of the Group. As such intangible asset amortisation and impairment are excluded from Trading profit because they are non-cash items.

· Restructuring costs have been excluded from Trading profit because they are incremental costs incurred as part of specific initiatives that may distort a user's view of underlying trading performance.

· Net regular interest is used to present the interest charge related to the Group's ongoing financial indebtedness, and therefore excludes non-cash items and other credits/charges which are included in the Group's net finance cost.

· Group & corporate costs refer to group and corporate expenses which are not directly attributable to a business unit and are reported at total Group level.

· In line with accounting standards, the International business unit, the results of which are aggregated within the Grocery business unit, are not required to be separately disclosed for reporting purposes.

· Net debt is presented pre-IFRS 16 as targets the Group have previously communicated are on a pre-IFRS 16 basis and this allows for comparability to these targets.

Consolidated statement of comprehensive income

1. General information

The financial information included in this preliminary announcement does not constitute the Company's

statutory accounts for the 53 weeks ended 03 April 2021 and for the 52 weeks ended 28 March 2020, but is derived from those accounts. Statutory accounts for the 52 weeks ended 28 March 2020 have been delivered to the registrar of companies, and those for 53 weeks ended 03 April 2021 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention to by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The consolidated financial statements of the Company have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

Basis for preparation of financial statements on a going concern basis

The Group's revolving credit facility includes net debt/EBITDA and EBITDA/interest covenants, as detailed in note 15. In the event these covenants are not met then the Group would be in breach of its financing agreement and, as would be the case in any covenant breach, the banking syndicate could withdraw funding to the Group. The Group was compliant with its covenant tests as at 26 September 2020 and 03 April 2021.

Having undertaken a robust assessment of the Group's forecasts with specific consideration to the trading performance of the Group, cashflows and covenant compliance in the context of the current COVID-19 pandemic, the Directors have a reasonable expectation that the Group is able to operate within the level of its current facilities, meet the required covenant tests and has adequate resources to continue in operational existence for at least 12 months from the date of approval of these financial statements. The Group and Company therefore continues to adopt the going concern basis in preparing its financial information for the reasons set out below:

At 03 April 2021, the Group had total assets less current liabilities of £2,011.2m and net assets of £1,183.6m. Liquidity as at that date was £177m, made up of cash and cash equivalents, and undrawn committed credit facilities of £173m expiring in December 2022. At the time of the approval of these financial statements, the cash and liquidity position of the group has not changed significantly. The revolving credit facility was refinanced in May 2021, the new facility is for £175m and expires in May 2024 with the option of extending for up to two additional years. Further details of the refinancing are included in note 15.

The Group operates in the Food Manufacturing industry, considered as essential during the current pandemic, and whilst uncertainty exists in respect of the potential future impact of COVID-19, HM Government restrictions when necessary to be put in place, mean more meals are eaten at home and hence increased demand for the Group's product ranges. The Group's first priority remains the health and wellbeing of its colleagues, customers and other stakeholders and to date the Group has experienced no net financial adverse impact of the COVID-19 pandemic with elevated levels of demand seen.

The Directors have rigorously reviewed the situation relating to COVID-19 and have modelled a series of 'downside case' scenarios impacting future financial performance, cash flows and covenant compliance, that cover a period of at least 12 months from the date of approval of the financial statements. These downside cases represent severe but plausible scenarios and include assumptions relating to estimation of the impact of the closure of all manufacturing sites due to colleague absence as opposed to Government imposed guidelines. The Directors believe that the risk of enforced site closures is low and have implemented additional health and safety measures in all factories to minimise the risk of a major supply disruption, to date there have been no manufacturing site closures. The Directors have also considered upcoming UK regulations impacting the food industry and consumer preferences that may have an adverse impact on the demand for certain product groups.

Whilst these downside scenarios are severe but plausible, each is considered by the Directors to be prudent, having an adverse impact on Revenue, margin and cash flow. The Directors, in response, also have identified mitigating actions within their control, that would reduce costs, optimising cashflow and liquidity. Amongst these are the following actions: reducing capital expenditure, reducing marketing spend and delaying or cancelling discretionary spend. The Directors have assumed no significant structural changes to the business will be needed in any of the scenarios modelled.

The Directors, after reviewing financial forecasts and financing arrangements, consider that the Group and Company has adequate resources to continue to meet its liabilities as they fall due for at least 12 months from the date of approval the financial statements. Accordingly, the Directors are satisfied that it is appropriate to adopt the going concern basis in preparing its financial statements.

2. Significant accounting policies, estimates and judgements

The following are areas of particular significance to the Group's financial statements and may include the use of estimates, which is fundamental to the compilation of a set of financial statements. Results may differ from actual amounts.

Significant accounting policies

The following are considered to be the significant accounting policies within the financial statements:

2.1 Deferred tax

Deferred tax arises due to certain temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and those for taxation purposes. The Group has a significant loss related to prior periods. The deferred tax assets and liabilities on a gross basis are material to the financial statements.