Premier Foods Regulatory News (PFD)

18 May 2023

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

Another strong year; Adjusted PBT up 13.0%, and further pensions progress

Alternative performance measures above are defined and reconciled to statutory measures throughout.

Headline results presented for FY22/23 include ownership of 'The Spice Tailor'.

Trading profit is stated including software amortisation; FY21/22 comparative is re-stated accordingly.

Reconciliations for Revenue and Trading profit showing impact of the financial performance of The Spice Tailor during period of ownership and the Trading profit definition update are provided in the appendices.

"Once again, the business has delivered a year of strong performance in a challenging environment with Group Revenue increasing by 11.8%. Our brands grew strongly, up 9.1%, underpinned by our branded growth model and supported by higher pricing. Trading profit increased by 11.5%, maintaining margins versus a year ago, as we successfully offset exceptionally high input cost inflation through a combination of cost efficiencies and pricing."

"Additionally, we continued to make very good progress against all our strategic objectives; our brands in the UK grew by 7.5%14, with the Grocery brands further increasing market share; revenues from new categories this year increased by 33% and we achieved a record market share for Mr Kipling in Australia. We made our first acquisition in 15 years, The Spice Tailor brand, which is already delivering accelerated sales growth as we apply our proven branded growth model. Even after this transaction, we reduced Net debt by over £10m, lowering Net debt/adjusted EBITDA to 1.5x, in line with our medium-term target. With a much stronger balance sheet, we are pleased to propose an increase in the dividend of 20% again this year. Additionally, we have today announced a further 50% reduction in the net present value of our pension contributions and a reduction in annual cash contributions of £6m."

"We know that consumer budgets remain under pressure in the current environment and our broad portfolio of brands continue to provide great options to prepare and eat good value, delicious meals at home. We are continuing to see consumers looking for convenient, affordable and tasty meal solutions and Batchelors and Nissin were two of our best branded performers in the year which benefitted from this trend. Batchelors, well known for its tasty Super Noodles, has now become our largest Grocery brand, increasing revenues by over 20% this year."

"We will continue to pursue vigorously our five pillar growth strategy and with our positive momentum, including a good start to Q1, we are well placed to make further progress this year, and our expectations remain unchanged."

The Group continues to make strong progress against its 'Enriching Life Plan' which 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.

Under the product pillar, sales of plant-based products such as Plantastic cooking sauces, protein pots and Millionaire Flapjacks increased by 34% in the year. In terms of packaging, the percentage of finished goods which are recyclable across the Group have now reached 96%. Progress in the planet workstreams includes receipt of validation of emissions targets from the SBTi18 coalition, while the Group has also reduced food waste (as measured by Champions 12.319) by 11% in the year. In the people pillar, the Company agreed a new corporate charity partnership with FareShare in the year and launched a colleague volunteering scheme. Additionally, 47% of management roles are now held by female colleagues.

Subject to shareholder approval, the directors have proposed a final dividend of 1.44 pence in respect of the 52 weeks ended 1 April 2023 (FY21/22: 1.2p), payable on 28 July 2023 to shareholders on the register at the close of business on 30 June 2023. The shares will go ex-dividend on 29 June 2023. This represents a 20% increase in the dividend paid per share compared to FY21/22, is ahead of adjusted earnings per share growth and is consistent with Board's approach of proposing a progressive dividend to shareholders.

The Group delivered a strong financial performance in FY22/23, demonstrated by clear progress across all the elements of its five pillar strategy. Looking ahead to the coming year, the Group has strong plans in place for product innovation, further consumer marketing and increased capital investment. Additionally, it expects to build on the initial success in new categories, deliver further progress Internationally and continue to explore M&A opportunities. With continued positive momentum and a good start to Quarter one, the Group is well placed to make further progress this year, with expectations unchanged.

The Group's five pillar strategy drives growth and creates value, as outlined below.

A presentation to investors and analysts will be webcast live 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 2023, at 1:30pm BST. Dial in details are outlined below:

As one of Britain's largest food producers, 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:

Sarah Henderson, Director of Communications

Headland

- 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.

Overview

The table above is presented including the impact of The Spice Tailor acquisition. A reconciliation excluding The Spice Tailor is included in the appendices.

Group revenue increased by 11.8% in the year, with branded revenue up 9.1% and non-branded revenue 28.3% higher. Revenue growth of 6.6% in the first half of the year accelerated to 15.8% in H2. Divisional contribution grew by 11.7% to £216.2m, with margins in line with the prior year and Trading profit increased by 11.5% to £157.5m. Group and corporate costs rose in the year, reflecting wage and salary inflation, additional strategic roles and a provision release in the prior year. The Company also paid one-off cost of living payments to colleagues and awarded a bonus to all colleagues in the year. Trading profit also included other income of £3.8m reflecting a receipt following a temporary interruption at a manufacturing site, in compensation for equivalent revenue and cost of sales impact presented within Gross profit. Adjusted profit before tax and adjusted earnings per share increased by 13.0% and 12.7% respectively. Basic earnings per share for FY22/23 increased by 17.8% to 10.6p. The results above include seven month's ownership of The Spice Tailor.

Trading performance

Grocery

The table above is presented including the impact of The Spice Tailor acquisition. A reconciliation excluding The Spice Tailor is included in the appendices.

Grocery revenue increased by 15.3% in the year to £746.8m and Branded revenue grew by 13.4% to £635.3m. Non-branded revenue increased by £23.9m to £111.5m. Divisional contribution was 18.1% higher at £189.2m and consequently, divisional contribution margins increased by 60 basis points.

In the fourth quarter, Grocery revenue increased by 24.7%, with very strong growth in both branded and non-branded revenue, reflecting pricing and benefits of the branded growth model across the portfolio. Market share13 grew by 64 basis points across the year, illustrating the strength and resilience of the Group's portfolio as consumers budgets came under pressure. Non-branded revenue grew due to pricing benefits in retailer branded product categories and recovery in out of home sales compared to the prior year.

The Group's branded growth model leverages the strength of its market leading brands, launching insightful new products, supporting the brands with emotionally engaging advertising and building strategic retail partnerships. During the year, the Group expanded investment in its 'Best Restaurant in Town' campaign, which highlights great value meal ideas across the Grocery portfolio. This strategy has driven 5.3% compound annual branded revenue growth for the combined UK Grocery and Sweet Treats businesses over the last three years (this excludes revenue related to The Spice Tailor).

Revenue growth of Batchelors and Nissin noodles ranges were particularly strong in the year, as consumers sought convenient, tasty and affordable meal solutions across the respective product ranges. Consequently, Batchelors is now the Group's largest Grocery brand by revenue. New product development, driven by key consumer trends included Sharwood's East Asian cooking sauces, Batchelors pasta 'n' sauce chef specials, Ambrosia Deluxe custard pots and Plantastic cooking sauces and protein pots.

Strong, collaborative partnerships with customers is another key element of the Group's branded growth model. Ambrosia and Angel Delight teamed up with the Minions to deliver great instore activity in conjunction with on pack offers to win cinema tickets. Additionally, Batchelors continued to partner with the DC Warner Brothers Superhero franchise to offer consumers the opportunity to win prizes. These are both pertinent examples of driving volume uplifts with retail customers leveraging the strength of the Group's brands and the respective franchise partners.

Another of the Group's growth strategies is to leverage its strong brand equities to expand into adjacent categories. Revenues from products launched in new categories increased by 33% in the year and was led by a particularly good performance from Ambrosia porridge pots. This product benefits from being ready to eat with the distinctive creamy texture characteristic of Ambrosia. The 'on the go' porridge pot market is a high growth category, and Ambrosia porridge succeeded in gaining over 10% value share in certain major retailers.

The Group acquired The Spice Tailor brand in the year. Complementing the Sharwood's and Loyd Grossman brands in the cooking sauces and accompaniments category, The Spice Tailor grew revenue by 25% on a 12 month pro forma basis, to £17m in FY22/23, in line with expectations and ahead of its historical growth rate.

New product development for FY23/24 include Loyd Grossman stir in sauces, Sharwood's lower fat curry pastes and Batchelors cook with noodles.

Sweet Treats

Revenue in the Sweet Treats business grew by 2.7% in the year. Branded revenue was £208.9m, (2.4%) lower than the prior year, while non-branded revenue increased by 30.5% to £50.7m. The particularly strong growth in non-branded revenue of 30.5% was due to pricing benefits of existing ranges and contract wins in pies and tarts and seasonal ranges.

In the fourth quarter, overall revenue growth was similar to the full year, with revenue growing by 2.9%. Branded revenue showed an improving trend compared to the third quarter and Non-branded grew by over 60% versus the prior year.

Divisional contribution was £27.0m in the year, £6.4m lower than FY21/22. While divisional contribution margins of 10.4% were 2.8 percentage points lower than the prior year, they were 1.1 percentage points higher than two years ago. Revenue growth reflected pricing to help recover input cost inflation, partly offset by lower volumes due to lower promotional activity, especially in the first half of the year and some price elasticity effects which we expect to recover over the coming months. In the second half, Sweet Treats was also affected by some unscheduled maintenance of a Cadbury cake plant line which impacted Divisional contribution in the year.

The Mr Kipling brand launched a new, non-HFSS (non-high fat, salt & sugar) cake range called 'Deliciously Good' in the year, which received a good response from consumers. This new range is a clear demonstration of how the Group is delivering against the Group's 'Enriching Life Plan' ESG strategy and offers consumers further options to support healthier lifestyles. The product range is made with 30% less sugar and lower fat and benefits from a higher content of fibre and fruit compared with the standard Mr Kipling range. These cakes are the only full range which can be promoted on end of aisles and at front of store in large supermarkets, under new legislation. Other new product development launched in the year included Mr Kipling Signature brownie bites and Plantastic Millionaire Flapjacks.

Mr Kipling also benefitted from a fresh new TV campaign for Mr Kipling, the 'Piano' advert, continuing the strategy under the brand growth model of building emotional connections with consumers. Looking ahead to next year, product innovation to be launched to market includes Mr Kipling Deliciously Good loaf cakes and Cadbury Mini rolls in mint and orange flavours.

International

Revenue overseas (on a constant currency basis and excluding The Spice Tailor) increased by 10%8 compared to the prior year. On a reported basis and including The Spice Tailor, revenue growth was 19%. This progress was broad based across the Group's target markets of Australia, Canada, Europe, Ireland and the USA. The key focus brands which the Group considers possess the greatest potential for long-term international growth, are Sharwood's, Mr Kipling and The Spice Tailor. In FY22/23, Sharwood's and Mr Kipling grew by 30% and 11% respectively.

The Group's strategy of building sustainable businesses in its target markets is progressing well. In Australia, the Mr Kipling and Cadbury cake brands have collectively delivered the Group's highest ever share of the cake market in the year and reached 15.6% on a full year basis, extending leadership of the cake category. Additionally, and following the acquisition of The Spice Tailor, the reach in the Australian ethnic cooking sauces market is significantly enhanced, and presents further opportunity for growth.

The Mr Kipling test in the USA concluded successfully with encouraging rate of sale KPIs; wider rollout to additional retailers has now commenced and is expected to build during FY23/24. Sharwood's also grew sales strongly in the US throughout the year. In Canada, revenue more than doubled in the year following the listing of 30 new product lines of Sharwood's in a leading North American retailer. This was followed up by listings of The Spice Tailor in the same retailer shortly after acquisition, while Mr Kipling cake also delivered good sales growth in the year.

Sales in Ireland were, like the UK, broad based and Nissin noodles sales more than doubled. Europe continues to deliver distribution gains for Sharwood's, entering the Netherlands for the first time and expanding presence in Spain and Germany.

Operating profit

Operating profit grew by £1.1m to £132.2m in the year. Trading profit increased to £157.5m, as described above. Brand amortisation was £20.7m in the year and movement in the fair valuation of foreign exchange and derivative contracts was a charge of £1.8m. Net interest on pensions and administrative expenses was a credit of £17.7m (FY21/22: £4.2m), reflecting c.£26m due to an interest credit on the opening combined surplus of the pension scheme, partly offset by approximately £8m of administrative expenses. Following the decision to close the Group's Knighton manufacturing site, restructuring costs of £7.6m were incurred in addition to an impairment charge of £3.6m. Total restructuring costs taken in the year were £11.1m which included some additional supply chain restructuring. Other non-trading items were £5.8m, predominantly reflecting M&A advisory costs and other one-off supply chain charges. Other non-trading income of £1.5m in the prior period primarily related to the successful resolution of a legacy legal matter.

Finance costs

Net finance cost was £19.8m in the year, a reduction of £8.7m compared to the prior year. This was primarily due to the accelerated amortisation of debt issuance costs (£4.3m) and the early redemption of the Group's now retired £300m 2023 dated Fixed Rate Notes (£4.7m) in FY21/22. Net regular interest5 was £20.3m, £0.5m higher than last year. This increase was due to a higher SONIA rate applicable to the Group's revolving credit and debtors securitisation facilities, partly offset by the full year effect of lower Senior secured notes interest charges following issuance of the Group's 3.5% 2026 Fixed Rate Notes.

Taxation

The taxation charge for the year of £20.8m (2021/22: £25.1m) comprised a charge on operating activities of £21.4m (2021/22: £19.5m) and adjustments to remeasure the opening deferred tax balances, the latter due to the change in UK corporation tax from 19% to 25%, effective 1 April 2023. The Group currently retains brought forward losses which it can utilise to offset against future tax liabilities and has now recommenced paying cash tax.

Earnings per share

The Group reported profit before tax of £112.4m in the year, a 9.6% increase on FY21/22. Profit after tax increased by £14.1m to £91.6m and basic earnings per share increased by 17.8% to 10.6 pence.

Cash flow

Net debt as at 1 April 2023 was £274.3m, a reduction of £10.7m compared to the prior year. An inflow of cash and cash equivalents was £9.1m and movement in lease liabilities of £2.8m was partly offset by a £1.2m movement in debt issuance costs. The reduction in Net debt was after paying consideration of £43.8m to acquire The Spice Tailor.

Trading profit was £157.5m, as described above, while depreciation and software amortisation was £24.8m. A £24.8m outflow of working capital was due to higher stock reflecting inflation of both raw materials and finished goods, with an associated impact on debtors. Pension deficit contribution payments of £37.5m and administration cash were £7.6m, totalling £45.1m cash outflow to the schemes.

On a statutory basis, cash generated from operating activities was £87.2m (2021/22: £90.1m) after deducting net interest paid of £19.6m (FY21/22: £20.8m) reflecting a lower coupon on the Group's Fixed Rate Notes, partly offset by higher SONIA rates on the Group's unutilised RCF and debtors securitisation facilities. The Group paid Tax of £1.5m (2021/22: Nil).

Cash used in investing activities was £63.8m (FY21/22: £23.2m) and included acquisition consideration of The Spice Tailor as described above and capital expenditure of £20.0m (FY21/22: £23.2m). In FY23/24, the Group expects to increase its capital investment, as it looks to accelerate investment across the supply chain and transfer some manufacturing capability from the Knighton site to Ashford, Kent and Carlton, South Yorkshire. Such investment includes both growth projects supporting the Group's innovation strategy and cost release projects to deliver efficiency savings. The strategy of investing in supply chain infrastructure represents a virtuous cycle to provide the fuel for the Group's branded growth model. Projects completed in the year include automation solutions at some of the Group's cake manufacturing sites; at the Stoke site an end of line auto case packer and triple head depositor were installed and Carlton invested in an end of line auto case packer.

Cash used in financing activities was £14.3m in the year (FY21/22: £13.7m) which included a £10.3m dividend payment to shareholders. A dividend match payment to the Group's pension schemes of £2.7m was also made in the year.

The Group's Net debt/adjusted EBITDA ratio at 1 April 2023 was 1.5x, a reduction of 0.2x compared to the prior year position and in line with the medium-term target. As at 1 April 2023, the Group held cash and bank deposits of £63.4m and its £175m revolving credit facility was undrawn.

Pensions

The Group's pension scheme had a combined surplus of £765.5m at 1 April 2023, a reduction of £179.4m compared to the prior year. This is equivalent to a surplus of £574.1m net of a deferred tax charge of 25.0%. Asset values and liabilities fell in both sections of the schemes due to the hedging in place. The movement in liabilities was impacted by the increase in discount rate, from 2.75% to 4.80%, reflecting recent rises in UK corporate bond yields. Asset values were lower across a number of asset classes, notably in absolute return products and credit funds.

A deferred tax rate 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.

Assets in the combined schemes decreased by £1,307.2m, or by 25.6%, to £3,792.8m in the period. RHM scheme assets reduced by £1,033.5m to £3,240.2m while the Premier Foods' schemes assets decreased by £273.7m to £552.6m. In the combined schemes, liabilities decreased by £1,127.8m, or 27.1%, to £3,027.3m. The RPI inflation rate assumption used decreased by thirty basis points to 3.3%, compared to 3.6% as at 2 April 2022.

The pension Trustee manages impacts from market volatility efficiently and there were no issues encountered by the scheme as a result of LDI asset collateral calls due to volatility in financial markets during FY22/23.

Pensions - Triennial actuarial valuation

As at 31 March 2022, the Group's pension scheme was valued at a combined surplus of £297m on a technical provisions basis. Within this, was an RHM section surplus of £665m and a Premier Foods section deficit of £368m. This represents an improvement of approximately £511m compared to the previous technical provisions basis at 31 March 2019, when the combined valuation was a deficit of £214m.

Following this valuation, the Company and Trustees of the schemes have agreed to reduce the annual deficit contribution payments by £5m per annum to £33m until FY25/26. Additionally, administrative expenses (including the UK Government PPF levy) have reduced from the Group's guidance of £6-8m per annum to £6m. Consequently, and in addition to an increase in the Group's post-tax weighted average cost of capital to 9.1% (FY21/22: 7.4%), the net present value of future pension contributions to the end of the respective recovery periods has reduced by approximately 50%, from £240-260m15 to approximately £125m15. This includes the benefit of a c.£100m surplus from the RHM section on a buyout valuation basis.

The Group is a highly cash generative business and has substantially reduced its interest costs in recent years. Today, the allocation of capital is split across pension contributions, capital investment and dividends. Additionally, the Group continues to explore M&A opportunities. In the medium term, pensions contributions are expected to reduce further, freeing up more cash to spend on capital investment, M&A and dividends.

Strong risk management is key to delivery of the Group's strategic objectives. It 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 Group's principal risks and uncertainties will be disclosed in the annual report and accounts for the financial period ended 1 April 2023. The major strategic and operational risks are summarised under the headings of Macroeconomic and geopolitical instability, Impact of Government legislation, Market and retailer actions, Operational integrity, Legal compliance, Climate risk, Technology, Product portfolio, HR and employee risk, Strategy delivery. The Group notes the increase since last year of the widely reported macro-economic and industry wide supply chain environment issues which it continues to navigate successfully through. In particular, the Group acknowledges risks around increased input cost inflation and potential changes in consumer behaviour.

The Company's Preliminary results are presented for the 52 weeks ended 1 April 2023 and the comparative period, 52 weeks ended 2 April 2022. All references to the 'quarter', unless otherwise stated, are for the 13 weeks ended 1 April 2023 and the comparative periods, 13 weeks ended 2 April 2022.

The following table outlines the basis on which the Group will report headline revenue for FY23/24.

This includes The Spice Tailor but excludes sales from Knighton which will be managed for exit during the course of FY23/24, following the decision to close the site. In FY22/23, all Knighton revenue was all reported in Grocery - Non-branded.

The Company uses a number of alternative performance measures to measure and assess the financial performance of the business. The directors believe that these alternative performance measures assist in providing additional useful information on the underlying trends, performance and position of the Group. These alternative performance 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.

Additional notes: