Premier Foods Regulatory News (PFD)

18 May 2022

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

Trading profit and adjusted PBT ahead of expectations; further market share gains;

£60m reduction in pension contributions NPV to £240-£260m

· Trading profit, Adjusted PBT and earnings per share ahead of previously raised expectations11, dividend up +20%

· Strong branded growth driving volume and value market share gains in both Grocery and Sweet Treats

· Successfully navigating macro and industry wide supply chain challenges and continued inflationary environment

· Trading profit margin increased 60 basis points to 16.5%, leveraging operational efficiencies

· International revenue up +25%8 vs two years ago; strong growth on Sharwood's and Mr Kipling

· Interest costs5 halved in last two years, reflecting strength of strategic progress and debt refinancing

· Pensions merger now delivering through c.£60m reduction in NPV of cash contributions

· New ESG strategy, the 'Enriching Life Plan', announced with a series of major sustainability commitments

· Expectations for further good progress in FY22/23 unchanged

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

* FY21/22 and FY19/20 were 52 week years, FY20/21 was a 53 week year, a reconciliation between 53 week and 52 week measure for FY20/21 and the financials for FY19/20 are provided in the appendices

Compared to 2 years ago

Compared to 1 year ago

"In January, we increased our full year profit guidance11, and so it's particularly pleasing that we have exceeded those increased expectations with Trading profit up 11.9% and adjusted PBT up 37.6% compared to two years ago. Yet again, our brands have grown faster than their categories, with revenues increasing nearly 10% vs two years ago as they gained volume and value market share in Grocery and Sweet Treats both instore and online. Mr Kipling enjoyed its best year ever, benefitting from sustained levels of marketing investment and a series of new product launches."

"As we look to expand beyond our core UK business, we have made great initial progress leveraging the strength of our leading brands by entering a number of adjacent new categories. Overseas, our International business grew by 25%8 compared to two years ago with particularly strong growth in Ireland and Australia driven by our priority international brands Sharwood's and Mr Kipling."

"Over the last two years, we have completely transformed our financial position with our leverage now down to 1.7x, our interest costs halved, and dividend payments recommenced after thirteen years. Today, we have announced a £60m reduction in the NPV of future pension payments, representing the first important deliverable from the pensions merger we announced two years ago."

"As we enter FY22/23, we have strong growth plans in place including several new product launches such as the range of Mr Kipling Deliciously Good cakes. We anticipate seeing further input cost inflation which we will continue to address using a combination of measures, as we have successfully done before, and including cost efficiency programmes and increased pricing. Our initial trading so far this year has been encouraging, in line with our plans, and we are seeing strong market share gains as consumers increasingly look for good value meal solutions. With this positive momentum, and the resilience of our brands, categories and supply chain, we are confident of delivering another year of good progress."

On 29 October 2021, the Group announced its new 'Enriching Life Plan' ESG strategy building on the strong progress the business has made to date. The Group recognises its responsibility and the opportunity, as a leading UK food manufacturer, to forge a healthier future for people and the planet. This new strategy will build a more resilient business for the long-term, ensuring it can thrive in a changing world. During the process of developing this strengthened ESG strategy, the Group also conducted a materiality review, engaging with a range of stakeholders.

This new ESG strategy is articulated through the three key strategic pillars of Product, Planet and People. The Group has set out a series of major sustainability targets under each pillar which can be found on the Company's website.

Last year, the Group recommenced the payment of a dividend to shareholders for the first time in thirteen years. Following another good year of progress, the Board is proposing a dividend for the full year of 1.2 per share, a 20.0% increase on the prior year. This reflects strong earnings per share growth in FY21/22, commitment to a progressive dividend and confidence in the Group's future plans.

The Group enters FY22/23 in a strong position, following another year of successful strategic and financial progress. It continues to execute against its five point strategy; growing the core UK business; investing in its infrastructure; expanding into new categories; building its overseas business and exploring M&A opportunities.

Initial trading so far this financial year has been in line with the Board's plans, and it is confident in the delivery of its full year expectations. The Group expects to see further input cost inflation, which it will continue to manage using a range of measures including cost efficiency programmes and further pricing action. The resilience of the Group's brands, categories and supply chain means it is well positioned to deliver further progress this year, while it's target of approximately 1.5x Net debt/adjusted EBITDA3 remains unchanged.

The Group delivers growth and creates value through its five point strategy, outlined below.

1. Continue to grow the UK core business

We have a vibrant and growing UK business which provides the basis for further expansion. The branded growth model which we employ in the UK is at the heart of what we do and is core to our success. With our leading category positions, we launch new products to market linked to key consumer trends, supported by sustained levels of marketing investment and delivered through strong customer and retailer partnerships.

2. Supply chain investment

We invest in operational infrastructure to increase efficiencies across our manufacturing and logistics operations, providing a virtuous cycle for brand investment. Capital investment in our sites also facilitates growth through our innovation strategy and enhances the safety and working conditions of our colleagues.

3. Expand UK business into new categories

We leverage the strength of our brands, using our proven branded growth model to launch products in adjacent, new food categories.

4. Build international businesses with critical mass

We are building sustainable business units with critical mass overseas, applying our brand building capabilities to deliver growth in our target markets of Republic of Ireland, Australia, North America and Europe. Our primary brands to drive this expansion are Mr Kipling and Sharwood's.

5. Inorganic opportunities

We will utilise our brand building and commercial expertise to expand across a wider portfolio, accelerating value creation through modest and targeted acquisition opportunities.

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 conference call for bond investors and analysts will take place today, 18 May 2022, at 1:30pm BST. Dial in details are outlined below:

Telephone: +44 20 8585 2961 (standard international access)

Conference ID: 3179028

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/

As one of the UK's largest food businesses, we're passionate about food and believe each and every day we have the opportunity to enrich life for everyone. Premier Foods employs over 4,000 people operating from 15 sites across the country, supplying a range of retail, wholesale, foodservice and other customers with our iconic brands which feature in millions of homes every day. 

Through some of the nation's best-loved brands, including Ambrosia, Batchelors, Bisto, Loyd Grossman, Mr. Kipling, Oxo and Sharwood's, we're creating great tasting products that contribute to healthy and balanced diets, while committing to nurturing our people and our local communities, and going further in the pursuit of a healthier planet, in line with our Purpose of 'Enriching Life Through Food'. 

Contacts:

Institutional investors and analysts:

Duncan Leggett, Chief Financial Officer

Richard Godden, Director of Investor Relations

Investor.relations@premierfoods.co.uk

Media enquiries:

Lisa Kavanagh, Director of Communications

Headland

Ed Young +44 (0) 7884 666830

Jack Gault +44 (0) 7799 089357

- 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.

Due to the unique nature of the prior year when the Group saw exceptional patterns of demand for its products during the peak of the Covid pandemic, it has managed and reviewed the performance of its business this year with reference to the more normalised trading conditions of two years ago as well as the prior year.

The statutory comparative period is for the 53 weeks ended 3 April 2021. To aid comparability of results against equal timeframes, the following review for headline measures is provided on a 52 week comparable basis and reconciliations provided to a 53 week basis for FY20/21 can be found in the appendix.

Revenue

Commentary versus two years ago

Group revenue increased by 6.3% compared to two years ago. Branded12 revenue was particularly strong, up 9.7%, while lower margin Non-branded13 revenue declined (10.6%). In the fourth quarter, Group revenues increased by 3.5% to £225.8m, with branded revenue up 5.1% and Non-branded revenue (7.0%) lower. This quarter compares against the same period two years ago when consumers began to accelerate their purchase of household staple grocery products at the onset of the pandemic. The Group's branded mix accelerated to 86.0% of total sales, up 270 basis points compared to two years ago.

The Group's branded growth model strategy leverages the strength of its market leading brands, launching insightful new products, supporting them with emotionally engaging advertising and building strategic retail partnerships. Branded revenues on a two-year compound annual growth rate basis, have grown by 4.7%, serving to illustrate the success of this strategy and model. Additionally, volume and value market share14 increased by 41 and 68 basis points respectively compared to the same period two years ago. Outperformance was delivered in both the Grocery and Sweet Treats markets, by 52 and 23 basis points respectively. In e-commerce, many consumers who turned to shopping online for grocery products during the pandemic have continued to use this channel. The Group's sales through online have grown by a very significant 71% compared to two years ago and additionally, market share has increased by 111 basis points.

Another key element of the Group's branded growth model is the strength of its retailer/customer partnerships. Compared to the prior year, the Group's weighted average distribution points have grown by 121 basis points; and one of the key drivers of this has been the strength and delivery of its innovation programme.

Grocery

Grocery revenue grew by 5.9% compared to two years ago. The branded portfolio was the clear driver behind this growth as revenue increased by 8.8%, with non-branded business (9.6%) lower. Grocery revenues in the fourth quarter were marginally lower by (0.2%), with higher margin brands delivering growth of 0.9%, as volumes spiked two years ago at the onset of the pandemic. This was offset by a (6.9%) decline in lower margin non-branded revenue due to lower out of home volumes.

The majority of the Group's Grocery brands grew revenues in FY21/22 compared to the same period two years ago. Brands such as Batchelors, Bisto, Sharwood's, Paxo and Angel Delight all grew well above the category averages and many of these have benefitted from sustained levels of consumer marketing investment and new product development programmes.

A major success for the Group has been the Nissin noodle product ranges. The Nissin brand has grown consistently strongly over the last four years; revenues this year grew by nearly 130% compared to the same period two years ago. During the year, Nissin noodles became the market leader in the authentic snack pot market, having grown market share from 16% in 2017 to 48% today.

The Group continues to bring more healthy product ranges to market such as Loyd Grossman 30% less sugar Lasagne sauces, no added sugar Homepride pasta bakes, Oxo meat-free Chicken flavour stock cubes and Angel Delight ready to eat, on the go, low calorie dessert pots. In FY22/23, the Group will be launching a series of exciting new better for you products such as Bisto Best meat-free gravy, Sharwood's lower fat Poppodoms and Popped Crackers and Paxo low salt stuffing.

One of the Group's strategic pillars is expanding into adjacent categories, leveraging the strength of the Group's branded equities' and significant progress was delivered in the year. This year, major launches included Oxo Rubs and Marinades, representing Oxo's first major move beyond its heartland of stock; the extension of the Mr Kipling, Ambrosia and Angel Delight brands into the Ice-cream category with initial sales over £1m while Cape Herb & Spice, the product range of rubs, chilli and seasonings has achieved increased distribution.

Sweet Treats

Sweet Treats delivered strong revenue growth of 7.3% in the year when compared to two years ago, driven by particularly high branded growth, up 12.1% to £214.0m. This was partly offset by non-branded revenue which declined by (13.0%) following exit of lower margin contracts. During the fourth quarter, Sweet Treats revenue increased by 15.4%, reflecting strong branded sales, which grew 17.7%.

The branded performance was as a result of the particularly strong innovation program. Consumer uptake from the new better for you Mr Kipling 30% less sugar Viennese Whirls was strong, while the premium Mr Kipling Signature products such as Deluxe Millionaire Whirls also performed very well. Cadbury cake delivered strong growth through the year, well supported by innovation, and investment in Mr Kipling continued in FY21/22 with further advertising to come next year

As outlined above, one of the Group's strategies is to expand into new, adjacent, categories, leveraging its brands' equities. Mr Kipling entered the biscuit category for the first time in the second half of the year with a range of new biscuits targeting the everyday treat occasion.

Looking ahead to the coming year, the Group has recently announced the launch of Mr Kipling Deliciously Good cakes. This ground breaking new range is a clear demonstration of delivering against the Group's 'Enriching Life Plan' ESG strategy, offering consumers further healthier options to support healthier lifestyles. These new cakes, which come in seven different variants, are made with higher levels of fibre and fruit compared with the standard Mr Kipling range and are classified as non-HFSS under UK government guidelines.

International

In the International business, revenue on a constant currency basis was 25%8 higher than the same period two years ago, with growth in all target markets. In Ireland, application of the branded growth model strategy saw further new product development and television advertising. The business entered the Quick Meals Snack & Soups and Homebaking categories and launched the Mr Kipling premium signature range of cakes. Revenues in Australia grew double digits, reflecting higher sales of Mr Kipling and Cadbury cake, which between them, hold a 14% share of the cake category and remain market leaders.

The Group continues to make strategic progress as it applies its brand building capabilities and executional focus in its priority markets of Ireland, North America, Australia and Europe. For example, Mr Kipling snack pack cake slices in Canada are now in wider distribution, following a successful trial and after refinement of the product proposition. A similar approach is being taken in the USA, with a test trial to validate the approach which commenced at the start of FY22/23. Also in the USA, Sharwood's continues to increase distribution in a key retailer reflecting both increased store presence and new product listings.

Europe is increasingly becoming a clear opportunity for the Group, with Sharwood's in particular demonstrating strong growth in both Spain and Germany during the year. In Spain, revenue of Sharwood's cooking sauces has increased by nearly 100% compared to two years ago, reflecting strong growth in Indian sauces such as Tikka Masala while sales in Germany have grown due to the popularity of Sharwood's Rice pots.

Non-branded

Non-branded revenue was (10.6%) lower than the same period two years ago. In Grocery, retailer non-branded revenue grew, while some out of home volumes remain below pre-pandemic levels, some parts of this business have now returned to growth on a one year basis. Sweet Treats non-branded revenue was impacted by lower margin contract exits in pies and slices.

Commentary versus prior year

The commentary in the following section is made by comparison to the 52 weeks ended 3 April 2021, unless otherwise stated

Group revenue for the 52 weeks to 2 April 2022 was £900.5m, a decrease of (3.6%) on the same period a year ago when volumes were inflated by more meals being eaten at home due to restrictions on out of home eating. Branded revenue was (3.4%) lower at £774.1m while non-branded revenue declined (4.7%) to £126.4m. In the fourth quarter, Group revenues were (0.5%) lower at £225.8m, with branded revenue down (1.8%) and non-branded revenue up 10.5%. The fourth quarter last year saw pandemic lockdown restrictions in place, with less out of home hospitality open to consumers and therefore a greater prevalence of eating in home.

When the year's results are compared to the statutory comparative of 53 weeks ended 3 April 2021, revenue was (4.9%) lower than the prior year. Grocery Revenue declined by (7.8%) while Sweet Treats grew by 3.4%. Branded revenue declined by (4.7%) while non-branded revenue was (6.0%) lower.

Grocery

As expected, Grocery revenue was lower in FY21/22 compared to the prior year. Branded and non-branded revenue declined by (6.9%) and (4.5%) respectively, reflecting the exceptional volumes experienced in the prior year due to the elevated consumer demand observed in the Group's grocery categories during the peaks of the Covid pandemic. During the course of the year, the strongest comparatives were seen in the first quarter when lockdown restrictions were at their most stringent.

Sweet Treats

In Sweet Treats, revenue grew by 5.0% in the year to £252.8m. The Branded part of the business grew strongly, as revenue grew by 7.0% to £214.0m, while Non-branded revenue was (5.0%) lower at £38.8m. In FY20/21, the cake category did not experience the same level of elevated volumes compared to that seen in the Group's grocery categories, as consumers focused on purchasing key household staple products as the UK entered lockdown restrictions.

The delivery of the Sweet Treats branded revenue profile is attributable to the Group's proven branded growth model, including the strength of the new product development programme and sustained marketing investment, as outlined above.

International

The International business saw revenue grow by 2%8 on a constant currency basis. In a similar vein to the Grocery business in the UK, revenue in the first half of the year compared to the prior period was impacted by the effects of the global pandemic. In particular, grocery product ranges in the majority of overseas markets saw lower sales due to more meals eaten at home during lockdown restrictions in the prior year, as was the case in the UK.

Non-branded

Grocery Non-branded sales were (4.5%) lower in the year due to lower sales at Knighton Foods partly offset by higher sales at the Group's frozen pizza base business, Charnwood Foods. In Sweet Treats, revenue declined by (5.0%) which was due to the impact of contract exits in fruit pies and slices ranges.

The Group's Non-branded business plays a secondary, supportive role which includes assisting the recovery of manufacturing overheads; applying strict financial hurdles on new contracts while deploying low levels of capital investment and protecting branded intellectual property.

Trading profit

Commentary versus two years ago

The Group delivered a very strong performance at Divisional contribution and Trading profit compared to two years ago. Trading profit rose by 11.9% to £148.3m as Grocery and Sweet Treats Divisional contribution grew by 8.1% and 41.0% respectively.

The Group's proven branded growth model has been a key driver behind these performances reflecting the benefits of its innovation strategy, consistent brand investment and collaborative customer partnerships. Gross margins and Trading profit margins increased by 120 and 80 basis points respectively compared to two years ago, reflecting benefits from branded mix and cost efficiency projects while the Group also increased investment behind its brands through higher advertising and marketing spend.

One of the Group's strategies is to increase its investment in its supply chain infrastructure. The elements of this strategy include capital investment to (i) increase efficiencies across the manufacturing and logistics operations and (ii) to facilitate growth through the Group's innovation strategy. Through these strategies, the Group expects to deliver improvements in gross margin, which then provides funds for additional brand investment, in line with the branded growth model and so drive further branded revenue growth as part of a virtuous cycle. An example of such investment includes a new pots line at the Ashford site, which will deliver innovation growth for the Batchelors and Sharwood's brands.

Commentary versus prior year

The commentary in the following section is made by comparison to the 52 weeks ended 3 April 2021, unless otherwise stated

As outlined above, the Group reported Trading profit of £148.3m in FY21/22. This matches the exceptional performance delivered in the prior year when Trading profit benefitted from the operational leverage effects of elevated volumes during the various lockdown phases of the pandemic. Divisional contribution was slightly lower at £193.6m while Group & corporate costs declined by 2.7% to £45.3m. The Grocery business reported Divisional contribution of £160.2m which was (7.1%) lower than the last year while Sweet Treats saw excellent Divisional contribution growth of 49.6% to £33.4m.

Last year, the Grocery business saw some exceptionally strong performances across its branded portfolio, as the substantial increase in volumes seen during the peaks of the Covid pandemic saw benefits to operational leverage, which in turn fed through to Divisional contribution. With Grocery volumes lower than FY20/21, this resulted in reduced levels of operational leverage and hence lower Divisional contribution in the year.

In Sweet Treats, Divisional contribution increased by £11.0m to £33.4m in the year. This strong progress reflects improved supply chain efficiencies, lower Covid related costs in the year and branded mix benefits as higher margin Mr Kipling and Cadbury cake sales increased while non-branded sales declined. Unlike the Group's grocery categories, the cake market was less impacted by exceptional consumer buying trends during the pandemic in 2020.

The Group continued to invest in its market leading brands during the year with Ambrosia, Batchelors, Bisto, Mr Kipling, Oxo and Sharwood's all benefitting from TV advertising. Additionally, some of these brands received investment in shorter, YouTube activation media which focus on helping consumers with ideas on recipes and cooking ideas. Looking ahead to FY22/23, the Group has plans for increased levels of brand investment as the prior year, as it continues to consistently apply its branded growth model strategy.

Group & corporate costs of £45.3m benefitted from lower management and colleague bonuses in the year and the release of a provision no longer required.

During the course of the year, global supply chains across a number of industries faced a range of challenges including a shortage of heavy goods vehicle (HGV) drivers; general labour shortages and an increasingly inflationary environment. The Group successfully navigated through this environment during FY21/22, demonstrating the strength of its supplier and customer relationships and delivering in line with its plans.

Following the tragic events unfolding in Ukraine in early 2022, a number of global commodity and energy markets are expected to rise further. While the Group has no direct exposure through revenue from, or purchases to, Russia or Ukraine, it expects to be impacted by rising global commodity markets over the coming months. Consequently, the Group will take mitigating actions to recover increased costs, both through cost efficiency measures and pricing actions.

Operating profit

Operating profit in the year was £131.1m, a decrease of £21.5m compared to the prior year. This was largely due to the reversal of the impairment loss on the Hovis loan note principal and profit on disposal of the Hovis investment in the comparative period of £32.6m. Operating profit before gain on sale of the Hovis investment associate grew by £11.1m in the year to £131.1m.

Amortisation of intangible assets was £27.0m in the year, a £3.4m reduction compared to FY20/21. Fair valuation of foreign exchange and derivatives resulted in a positive movement of £4.4m compared to the comparative period. An impairment reversal of £15.7m was recognised in the prior year in respect of the Hovis loan note previously written off; this reflected a reassessment of the loan note's recoverability. Hovis Holdings Limited was disposed by the Company and The Gores Group to Endless LLP on 5 November 2020. Additionally, a profit on disposal of £16.9m was recognised in the prior year following completion of this transaction.

Net interest on pensions and administrative expenses was a credit of £4.2m in the year. Expenses for operating the Group's pension schemes were £6.8m in the FY21/22, offset by a net interest credit of £11.0m due to an opening surplus of the Group's combined pension schemes. There were no restructuring costs incurred in the year; charges in the prior year of £8.3m were largely due to costs associated with advisory work on the segregated merger pensions agreement announced on 20 April 2020. Other non-trading income of £1.5m primarily related to the resolution of a legacy legal matter.

Finance costs

Net finance cost was £28.5m, a decrease of £1.3m compared to the comparative period. Net regular interest was £19.8m, a £13.2m reduction compared to the prior year and nearly half that of two years ago. This reduction was due to lower Senior secured notes interest charges following redemptions of the Group's now retired 2022 Floating Rate Notes ("FRN"). Additionally, the Group issued new £330m Fixed Rate Notes due October 2026 in FY21/22, replacing the previous £300m Fixed Rate Notes due July 2023 which were fully repaid in the year. The October 2026 Notes attract a lower coupon (3.5%) compared to the retired October 2023 Notes which attracted a coupon of 6.25%, therefore representing a significant ongoing saving for the Group. Consequently, Senior secured notes interest declined by £12.1m to £13.4m when compared to the prior year on a 52 week basis.

Bank debt interest of £4.3m was £0.3m lower than the prior year and the Group's revolving credit facility was undrawn as at 2 April 2022. Amortisation of debt issuance costs were £0.8m lower at £2.1m, reflecting a lower quantum of borrowing facilities held by the Group.

Following the completion of the Group's refinancing in the year, the write-off of financing costs associated with borrowings now retired and facilities which have since been replaced, were £4.3m in the period. Additionally, and as expected, a fee of £4.7m was incurred relating to the early redemption of the Group's now retired £300m 2023 dated Fixed Rate Notes.

In the prior period, other finance income of £4.7m related to the reversal of the impairment on interest on the Hovis loan note, reflecting the reassessment of the loan note's recoverability.

Taxation

The taxation charge for the year to 2 April 2022 was £25.1m (2020/21: £16.8m). This charge comprised primarily a charge on operating activities of £19.5m (2020/21: £23.3m) and £7.2m due to tax rate changes. In the Government's 2021 spring budget, the rate of corporation tax effective from April 2023 will increase from the current level of 19% to 25%. Therefore, deferred tax balances have been restated depending on the rate which they are expected to unwind.

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

Earnings per share

Profit before tax was £102.6m in the year, a decrease of £20.2m compared to FY20/21 and Profit after tax was £77.5m, £28.5m lower than the comparative period. On a two year comparator basis, profit before tax increased by £49.0m and profit after tax was £31.0m higher. Basic earnings per share was 9.0 pence compared to 12.5 pence in the prior period.

Adjusted profit before tax increased by 11.4% in the year to £128.5m, as Trading profit was in line with the prior period and net regular interest costs declined significantly, as described above. Adjusted profit after tax also grew by 11.4%, to £104.1m after deducting a notional 19.0% tax charge of £24.4m. Based on average shares in issue of 858.8 million shares, adjusted earnings per share were 10.5% higher at 12.1p.

When compared to two years ago, adjusted profit before tax increased by 37.6% due to both higher Trading profit and a significantly lower net regular interest charge. Over this time frame, adjusted profit after tax and adjusted earnings per share increased by 37.6% and 35.7% respectively.

Statutory cash flow statement

Free cash flow

On a statutory basis, cash generated from operations was £110.9m compared to £118.2m in the comparative period. Cash generated from operating activities was £90.1m after deducting net interest paid of £20.8m. Cash used in financing activities was £13.7m in the year versus £276.2m in the prior year and includes the proceeds from the issuance of the Group's £330m 2026 dated 3.5% Fixed Rate Notes in the period. These proceeds were largely offset by the repayment in full of the Group's £300m 2023 dated 6.25% Fixed Rate Notes, the last remaining £20.0m tranche of the Group's FRN, financing fees of £8.5m, an early redemption fee of £4.7m relating to the retirement of the £300m Fixed Rate Notes and dividends paid to shareholders of £8.5m. In FY20/21, 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 used cash generated during FY19/20 and FY20/21 to fund part redemptions of its FRN totalling £190.0m.

The Group reported an inflow in cash in the year of £43.2m. Trading profit of £148.3m was £3.0m lower than the prior year for the reasons outlined above, while depreciation of £19.2m was similar to the prior year. Other non-cash items of £4.1m was £0.7m higher and was predominantly due to share based payments.

Net interest paid of £20.8m was £11.8m lower than the prior year; this was due to reduced interest payments following the redemption of the Group's FRN and the issue of £330m Fixed Rate Notes due October 2026 which attract a coupon of 3.5%. These Fixed Rate Notes replaced the previous £300m Fixed Rate Notes due October 2023 which were repaid in the year and attracted a coupon of 6.25%. There was no taxation paid in FY21/22 due to the availability of brought forward losses and capital allowances.

Total pension contributions in the year were £41.4m, a £5.6m reduction compared to prior year, reflecting lower administration costs. Pension deficit contribution payments were £37.6m and administration costs amounted to £3.8m.

Capital expenditure was £23.2m and was broadly in line with the prior year. In the medium term, the Group expects capital expenditure to be in the range of £30-35m, as it looks to accelerate investment across the supply chain, covering both growth projects supporting the Group's innovation strategy and cost release projects to deliver efficiency savings. One of the key objectives of this programme, is through improving operational efficiency, the resultant accretion in gross margin will provide additional funds for brand investment. This strategy of investing in supply chain infrastructure represents a virtuous cycle to provide the fuel for the Group's branded growth model.

The year saw a working capital outflow of (£21.0m) compared to an inflow of £0.6m in the prior year. This outflow was largely due to the higher value of input costs on inventory and also higher level of trade receivables compared to the prior year.

The Group paid re-financing fees during the year which amounted to £13.2m and were largely due to advisory, legal and arrangement fees and included a redemption fee of £4.7m as referred to above. Dividends paid in the year were £11.0m; of this, £8.5m were payments made to shareholders and £2.5m was due to a dividend match payment in favour of the Group's pension schemes.

Net debt and sources of finance

Net debt at 2 April 2022 was £285.0m, a reduction of £47.7m compared to the prior year. The movement in cash in the year was £43.2m and the movement in debt issuance costs was £2.0m. Lease creditor movements were £2.5m and as at 2 April 2022, the Group held cash and bank deposits of £54.3m. On a pre-IFRS 16 basis, Net debt at 2 April 2022 was £268.9m.

Net debt/adjusted EBITDA3 was 1.7x on a Post-IFRS 16 basis.

During the year, the Group entered into a new revolving credit facility (RCF) with an updated lending group for a period of three years from May 2021 with extension options for up to two additional years. This new senior secured RCF is a committed facility of £175m and includes an interest margin grid broadly in line with the previous RCF. The prevailing coupon on the RCF is currently 2.5% above GBP SONIA and undrawn elements of the RCF attract interest equivalent to 35% of the applicable margin. Following the year end, the Group completed the first extension of the RCF facility to 2025.

Additionally, the Group issued new October 2026 dated £330m Fixed Rate Notes during the year. These notes attract an interest coupon of 3.5%; the first call date in 15 June 2023. As referred to above, the Group redeemed in full its £300m 2023 dated Fixed Rate Notes and the outstanding 2022 dated FRN during the year.

Pensions

IAS 19 results and commentary

The IAS 19 pension schemes valuation reported a surplus for the combined RHM and Premier Foods' pension schemes at 2 April 2022 of £944.9m, an increase of £405.0m compared to the prior year. This is equivalent to a surplus of £708.7m net of a deferred tax charge of 25.0%. The reduction in value of liabilities of £556.9m is the main driver behind the movement in the surplus and substantially reflects an increase in the applicable discount rate from 2.00% to 2.75% between the two respective periods. Asset values across the two sets of schemes reduced by £151.9m, with the RHM scheme asset values reducing by £185.7m and the Premier Foods scheme assets increasing by £33.8m. When compared to the position at 3 April 2021, the RHM scheme surplus increased by 23.4% while the Premier Foods' scheme deficit reduced by 49.3%.

Deferred tax of 25.0% 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. The deferred tax rate has been increased from the 19.0% rate used for the prior period to 25.0% following the change in the UK's corporation tax rate, effective from April 2023.

Actuarial valuation update and NPV of deficit contributions

Following the segregated merger of the Group's pension schemes, effective June 2020, an interim actuarial funding valuation of the Premier Foods and Premier Grocery Products sections as at 31 March 2021 has been completed. The outcome of this valuation has resulted in a £125m reduction in the deficit of these schemes from £552m as at 31 March 2019 to £427m as at 31 March 2021. Following the reduction in this deficit, the Company and Trustees of the schemes have agreed to reduce the length of the current pension deficit contribution schedule by two years. Consequently, the net present value of future pension contributions to the end of the respective recovery periods has reduced by approximately £60m, from £300-320m15 to £240-260m.

Capital allocation

The Group is a highly cash generative business and has substantially reduced its interest costs. Today, the allocation of capital is split across pension contributions, capital investment and dividends, with a strategy to explore bolt-on M&A. In the medium term, we expect pensions contributions to reduce, freeing up increased cash to spend on capital investment, dividends and M&A.

Principal risks and uncertainties

Strong risk management is key to delivery of the business' strategic objectives. The Group has an established risk

management process, the Executive Leadership Team performing a formal robust assessment of the principal

risks bi-annually which is reviewed by the Board and Audit Committee. Risks are monitored at a segment and

functional level throughout the year considering both internal and external factors. The principal risks that the Group is exposed to will be disclosed in the Group's 2022 Annual Report. These are: macroeconomic & geopolitical instability, impact of government legislation, market and retailer actions, operational integrity, legal compliance, climate risk, technology, product portfolio, HR and employee risk and strategy delivery.

Alex Whitehouse Duncan Leggett

Chief Executive Officer Chief Financial Officer

The Company's Preliminary results are presented for the 52 weeks ended 2 April 2022 and the comparative period, 53 weeks ended 3 April 2021 and 52 weeks ended 28 March 2020. References to the 'quarter', unless otherwise stated, are for the 13 weeks ended 2 April 2022 and the comparative periods, 13 weeks ended 3 April 2021 and 13 weeks ended 28 March 2020. To aid comparability of results, headline results are provided on a 52 week basis and reconciliations provided to a 53 week basis.

Quarter 4 Revenue

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.

The following are stated on a 52 week basis for each respective year:

Additional notes: