Premier Foods plc · LSE:PFD
Premier Foods — H1 2013 Earnings Presentation
62 slides from Premier Foods's earnings presentation, Jul 23, 2013
Slide 1: Half Year Results to 30 June 2013
Half Year Results to 30 June 2013 23 July 2013 Premier Foods plc
Slide 2: Cautionary statement
Cautionary statement Certain statements in this presentation are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those sta
Slide 3: Agenda
Agenda 1 Introduction Gavin Darby 2 2013 Half Year Results Mark Moran 3 Growth Strategies Gavin Darby 4 Q&A All 3
Slide 4: Strong performance across all priorities
Strong performance across all priorities Six successive quarters of Underlying Trading profit Grocery Power Brands growth increased by +50% Bread restructuring well ahead of plan Completed £20m Additional cost savings Net debt reduced to SG&A saving of £10m for H2 £890m activities 2013 Full year Tra
Slide 5: 2013 Half Year Results
2013 Half Year Results Mark Moran 5
Slide 6: Operating profit
Operating profit £m 2013 H1 2012 H1 Underlying business sales 621 627 Underlying business Trading profit 47 32 Add: Contract withdrawal - 1 Add: 2012 disposals 2 21 Add: 2012 pension credit - 19 Continuing operations Trading profit 49 73 Amortisation of intangible assets (24) (26) Fair value movemen
Slide 7: Adjusted earnings per share
Adjusted earnings per share £m 2013 H1 2012 H1 % Underlying Trading profit 47 32 50.2% Disposals, contract loss and other credits 2 41 96.3% Continuing operations Trading profit 49 73 (32.4%) Net Regular Interest (27) (43) 35.5% Adjusted PBT 22 30 (28.2%) Tax @ 23.25%/24.5% (5) (7) 31.9% Adjusted ea
Slide 8: Power Brands performing strongly
Power Brands performing strongly Sales (£m) 2013 H1 2012 H1 Growth (%) Power Brands 428 415 3.2% Support brands 101 106 (5.1%) Total branded 529 521 1.5% Non-branded 92 106 (12.7%) Total 621 627 (0.9%) Grocery Power Brands 253 244 4.0% Six successive quarters growth of Grocery Power Brands Q2 Gr
Slide 9: Grocery Division
Grocery Division £m 2013 H1 2012 H1 Growth (%) Branded sales 344 339 1.3% Non-branded sales 37 45 (18.5%) Total sales 381 384 (1.0%) Power Brands sales 253 244 4.0% Divisional contribution 77 77 0.3% Brands now account for over 90% of Grocery sales Consumer marketing slightly lower in H1; expect
Slide 10: Bread Division
Bread Division £m 2013 H1 2012 H1 Growth (%) Branded bread sales 185 182 1.8% Non-branded bread sales 56 60 (8.3%) Total bread sales 241 242 (0.7%) Milling sales 115 87 33.0% Total sales 356 329 8.2% Divisional contribution 14 19 (23.8%) Restructuring programme well ahead of plan Logistics netwo
Slide 11: SG&A cost savings in line with plan
SG&A cost savings in line with plan £m 2013 H1 2012 H1 Growth (%) Grocery divisional contribution 77 77 0.3% Bread divisional contribution 14 19 (23.8%) Group SG&A costs (44) (64) 31.1% Group Trading profit 47 32 50.2% SG&A £m SG&A savings programme activity 90 80 79 complete 70 64 60 Annual SG&
Slide 12: Recurring cash flow
Recurring cash flow £m 2013 H1 2012 H1 Trading profit 47 32 Underlying adjustments - 20 Trading profit pre-adjustments 47 52 Depreciation 16 18 Other non-cash items 2 (20) Interest (23) (35) Taxation - - Pension contributions (3) (11) Regular capital expenditure (15) (27) Working capital (29) (22) R
Slide 13: Recurring cash flow
Recurring cash flow £m 2013 H1 2012 H1 Recurring cash outflow (5) (45) Disposed businesses cash flows 2 23 Restructuring activity (25) (9) Operating cash flow from total Group (28) (31) Net disposal proceeds 91 34 Financing fees & finance leases 0 (25) Free cash flow 63 (22) Full year restructurin
Slide 14: Net debt
Net debt £m Net debt at 31 December 2012 951 Free cash flow 2013 H1 (63) Other non cash items 2 Net debt at 30 June 2013 890 Recurring free cash flow weighted to H2, reflecting business seasonality Deferred bank fees of £29m in H2 Other non cash items includes movement in capitalised debt issu
Slide 15: Lower pensions valuation due to discount rates
Lower pensions valuation due to discount rates IAS 19 Accounting valuation (£m) 30 June 2013 31 Dec 2012 Assets 3,259 3,209 Liabilities (3,654) (3,676) Gross deficit (395) (467) Net deficit (Tax @ 23.25%/24.5%) (303) (352) Discount rate 4.70% 4.45% Actuarial valuation ongoing, completion expected
Slide 16: 2013 Guidance
2013 Guidance 2013 Guidance Previous Revised SG&A cost savings £20m £20m De-complexity cost savings - £10m Recurring cash flow £40-60m £50-70m Depreciation c.£35m c.£35m Capex 3-3.5% of sales c.2.5% of sales Net regular interest £60-65m £60-65m Tax – P&L notional rate 23.25% 23.25% Tax - cash £0-£3m
Slide 17: Growth Strategies
Growth Strategies Gavin Darby 17
Slide 18: We are setting out our growth strategies for the next 3 years
We are setting out our growth strategies for the next 3 years Encouraging set of results for the Half Year 3 year Roadmap to clarify direction and goals Evolving strategy - focus on driving category as well as brand growth Balance between top-line and sustainable cost control We will update you on o
Slide 19: What you already know about Premier Foods
What you already know about Premier Foods CONSUMERS BRANDS CUSTOMERS COSTS PEOPLE Premier products Simplified portfolio We remain 2nd Nearly halved New CEO bought by 97% of - focus on Power biggest ambient SG&A in 2 years UK households Brands supplier in UK Dedicated Supply Chain management
Slide 20: What you may not fully appreciate
What you may not fully appreciate … CONSUMERS BRANDS CUSTOMERS COSTS PEOPLE Ambrosia & We are in double We have There are more We have enhanced Batchelors have digit growth in half unexploited opportunities to commercial talent reached 1million our categories opportunities in reduce complexity
Slide 21: By focusing on category as well as brand we will drive sustainable profitable growth
By focusing on category as well as brand we will drive sustainable profitable growth CATEGORY BRAND FOCUS FOCUS ‘Slice of the pie’ ‘Size and slice of the pie’ Power Brand focus Leverage total portfolio Tactical customer relationships Customer partnerships Innovation constrained Innov
Slide 22: Our strategy draws together our strengths with a category focus
Our strategy draws together our strengths with a category focus and sustainability foundation… BRANDS CUSTOMERS GROCERY CATEGORY FOCUS PEOPLE CONSUMERS COSTS BREAD SUSTAINABILITY 3 Growth – Category Focus 22
Slide 23: Our 3 year destination: The Best in British Food
...and will take us to our 3 year destination: “The Best in British Food” BRANDS CUSTOMERS GROCERY Brand people Preferred partner Profitable love in all channels growth engine CATEGORY FOCUS CONSUMERS Lasting Driving category PEOPLE relationships growth Winning team culture COSTS BREAD Significantly
Slide 24: In Grocery we operate in two broad and growing arenas
In Grocery we operate in two broad and growing arenas Savoury Meal Making Sweet Foods £5.7Bn, +5%1 £11.9bn, +3%1 Cake Ambient desserts Savoury snacks £2.9bn Canned Condiments =23% savoury Cooking sauces £3.5bn Stocks & gravy Biscuits, =61% Seasonings Confectionery, Herbs & Spices Ice cream, Pasta &
Slide 25: The organisation has been aligned to the category focus
The organisation has been aligned to the category focus Grocery Commercial Director – Ian Deste Sweet Savoury Customer Business Business Brands Sales Operations Unit Unit & B2B Consumer Shopper Customer Costs 3 Growth – Category Focus 25
Slide 26: Operating structure defines clear responsibilities
Operating structure defines clear responsibilities Bread Divisions Grocery Total Baking Milling Turnover1 £857m £498m £190m £1,545m Branded mix1 87% 54% 72% Div. Contribution1 £195m £27m £222m Centrally managed SG&A £99m Trading profit £123m Divisional management focused on Sales and Divisional Co
Slide 27: Consumers
Consumers… BRANDS CUSTOMERS GROCERY CATEGORY FOCUS PEOPLE CONSUMERS COSTS BREAD SUSTAINABILITY 3 Growth – Consumer 27
Slide 28: Consumer insight underpins our category approach
Consumer insight underpins our category approach Enjoyment & Household income Convenience drive Indulgence (or treating) remains under pressure behaviour remain important 0% 50% 100% Packed Enjoy the taste 8.0 Lunch £1.40 Quick to prepare 6.0 Health Indulgence Easy to prepare/clear 4.0 Out of 2.0 Ho
Slide 29: Innovation is core to market growth
Innovation is core to market growth 7 EPD NPD Existing Total Growth NPD and EPD are % of 6 increasingly driving growth Sales growth 5 4 3 2 1 0 -1 -2 Apr 2012 Jun 2012 Aug 2012 Sep 2012 Nov2012 Jan 2013 Mar 2013 52 w/e Contribution to Growth from New Product Development (NPD)/Existing Product Develo
Slide 30: Shoppers becoming more savvy leading to growth in online, discounters & convenience
Shoppers becoming more savvy leading to growth in online, discounters & ‘new’ convenience YoY growth 20.0% 18.3% 18.0% 16.0% 13.8% 14.0% 12.0% 10.0% 8.0% 6.0% 5.4% 3.7% 4.0% 2.2% 2.0% 0.0% Total Market Supermarkets Online Discounters Convenience Mults Channel size £101.8bn £67.8bn £5.2bn £8.1bn £4.2
Slide 31: Brands
Brands... BRANDS CUSTOMERS GROCERY CATEGORY FOCUS PEOPLE CONSUMERS COSTS BREAD SUSTAINABILITY 3 Growth – Brands 31
Slide 32: Focus on improving marketing effectiveness
Focus on improving marketing effectiveness Advertising % Retail Sales 2.5% We have significantly 1.9% increased media spend 2.0% behind our Power Brands 1.5% 1.3% Consumer marketing spend increased by nearly 1.0% 60% in 2012 vs 2011 0.5% Improved efficiency of spend in 2013 0.0% Premier Foods
Slide 33: Innovation and marketing will continue to drive category growth
Innovation and marketing will continue to drive category growth Oxo / Bisto Ambrosia Batchelors Gravy/Stocks Ambient Desserts Easy Eating Category +14.2% June YTD Category +5.6% June YTD Category +8.0% June YTD Premier +13.8% Premier +12.8% Premier +10.0% 3 Growth – Brands Source : Symphony IRI, YTD
Slide 34: There is a category role for all brands
There is a category role for all brands Loyd Grossman Mr. Kipling Support Brands Sharwood’s Investing in core equity Delivering ‘snackability’ Support category focus Insight to meal occasions Clear plan for H2 Leverage in wider channels Delicious Formal Lunchbox Desserts £1.29Bn £1.39 bn
Slide 35: Customers
Customers... BRANDS CUSTOMERS GROCERY CATEGORY FOCUS PEOPLE CONSUMERS COSTS BREAD SUSTAINABILITY 3 Growth – Customers 35
Slide 36: Joint Business Planning (JBP) in action
Joint Business Planning (JBP) in action.... THE JOINT TEAM CUSTOMER PROFITABILITY BOTTOM-UP PLANS BY PROMOTIONAL PLAN CATGEORY A – Sold more B - Sold less Mutually Unsustainable Beneficial Unrealistic and made than forecast, EVENTS & CORE 4 RANGE & MERCHANDISING IINNOVATION SHOPPER PRICING & PROMOTI
Slide 37: Exploiting growth channels - discounters
Exploiting growth channels - discounters Discounters growing at 13.8% and represent 8% share of the market Leveraging support brands in new channels using new and existing formats 3 Growth – Customers 37
Slide 38: There are further opportunities online
There are further opportunities online UK Grocery Market (online) Premier over-indexes in online with a 27% £5.2 Billion share of Grocery Power categories Growth +18.3% 21.8% Premier growth rate is 21.5% vs the online of UK population currently market at +18.3% shop online for groceries Retailer onl
Slide 39: International partnerships provide growth opportunities
International partnerships provide growth opportunities External and Internal Opportunities Evolve from export ‘push’ to partnership ‘pull’ approach in key markets 2012 Group sales UK = 97.4% International = 2.6% Leverage Premier Foods’ UK capabilities and infrastructure with international partn
Slide 40: People
People... BRANDS CUSTOMERS GROCERY CATEGORY FOCUS PEOPLE CONSUMERS COSTS BREAD SUSTAINABILITY 3 Growth – People 40
Slide 41: Talented commercial team from across the consumer industry
Talented commercial team from across the consumer industry Ian Deste - Commercial Director, Grocery 20 years at Coca-Cola Key senior commercial appointments and experience Claire Harrison-Church - CBU Director Sweet Helen Warren-Piper - CBU Director Savoury Graeme Karavis - Grocery Multiples Accou
Slide 42: Costs
Costs... BRANDS CUSTOMERS GROCERY CATEGORY FOCUS PEOPLE CONSUMERS COSTS BREAD SUSTAINABILITY 3 Growth – Costs 42
Slide 43: Complexity savings of £10m in 2013 H2
Complexity savings of £10m in 2013 H2 Grocery Dough Suppliers SKUs recipes 1,700 170 3,300 Packaging Catering Legal items suppliers entities 6,300 77 100 3 Growth – Costs 43
Slide 44: Opportunities across the product portfolio
Opportunities across the product portfolio Grocery : Total 1700 SKUs 250 SKUs 600 SKUs Turnover 600 SKUs 250 SKUs Divisional Contribution Red SKUs assigned immediate focus for develop, build or exit 3 Growth – Costs 44
Slide 45: Addressing the red quadrant will improve profitability
Addressing the red quadrant will improve profitability Choices Actions Remove Exit 425 Red SKUs Retain Build 600 100 Action required Develop 75 3 Growth – Costs 45
Slide 46: We will grow with a smaller number of strategic suppliers
We will grow with a smaller number of strategic suppliers who invest in our growth Forecasting a 50% reduction in our supplier base 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2012 2013F 2014F 3 Growth – Costs 46
Slide 47: Bread
Bread BRANDS CUSTOMERS GROCERY CATEGORY FOCUS PEOPLE CONSUMERS COSTS BREAD SUSTAINABILITY 3 Bread 47
Slide 48: Dedicated management team now in place
Dedicated management team now in place Bob Spooner Managing Director, Bread & Group Supply Chain Director Sara Lee Northern Foods Simon Devereux Chad Leembruggen Richard Whall David Hunt CBU Director Bread Sales Director Manufacturing & Technical Logistics & Customer Director Services Director D
Slide 49: Restructuring well ahead of plan
Restructuring well ahead of plan • Focus on delivering reduced cost-to-serve and improved profitability • Optimise Bakery & Milling footprint – 3 Bakery closures – Logistics network restructuring complete – 2 Mill closures 1 – Dedicated focus on free trade Milling business • Capital investment to im
Slide 50: Medium-term Bread plans
Medium-term Bread plans Drive category value through focus on growth sectors e.g. premium Leverage ‘healthy’ credentials of Hovis in line with consumer trends Invest in marketing and innovation Continue to optimise demand and supply balance to improve margin mix Increase capital investment per baker
Slide 51: Our 3 year destination: The Best in British Food
Our 3 year destination: “The Best in British Food” BRANDS CUSTOMERS GROCERY Brand people Preferred partner Profitable love in all channels growth engine CATEGORY FOCUS CONSUMERS Lasting Driving category PEOPLE relationships growth Winning team culture COSTS BREAD Significantly Strengthened reduced c
Slide 52: Medium term outlook
Medium term outlook Branded revenue growth of 2-4% 3 52
Slide 53: Power Brands performing strongly
Power Brands performing strongly Sales (£m) 2013 H1 2012 H1 Growth (%) Power Brands 428 415 3.2% Support brands 101 106 (5.1%) Total branded 529 521 1.5% Non-branded 92 106 (12.7%) Total 621 627 (0.9%) Grocery Power Brands 253 244 4.0% 3 53
Slide 54: Medium term outlook
Medium term outlook Branded revenue growth of 2-4% Steady EBITDA % margin progression Continued delivery of strong operating cash generation Address capital structure from a position of strengthening business fundamentals 3 54
Slide 55: Q&A
Q&A 4 Q&A 55
Slide 56: Appendix
Appendix 23 July 2013 56
Slide 57: Continuing – Underlying business
Continuing – Underlying business Continuing Less: Less: Less: Less: 2012 Underlying £m Business Disposals Milling Contract Other Business sales Withdrawals credits 2013 H1 Sales 742.2 (5.7) (115.3) - - 621.2 Trading 48.9 (1.5) N/A - - 47.4 profit EBITDA 65.3 (1.5) N/A - 63.8 2012 H1 Sales 852.8 (124
Slide 58: Earnings per share
Earnings per share £m 2013 H1 2012 H1 Operating (loss)/profit (3) 15 Net regular interest (27) (42) Other interest 7 (19) Loss before tax (23) (46) Tax 8 5 Net Loss (15) (41) Average weighted shares (millions) 239.8 239.8 Basic loss per share from continuing operations (6.4p) (17.2p) Tax credit in
Slide 59: Interest
Interest £m 2013 H1 2012 H1 Bank debt interest 12 19 Swap contract interest 3 14 Securitisation interest 2 1 17 34 Amortisation and deferred fees 10 8 Net regular interest 27 42 IAS 39 – fair valuation of financial instruments (7) 7 Write off of financing costs - 11 Other 1 1 Net finance expense 21
Slide 60: Tax
Tax 2013 H1 credit of £8m on continuing operations Cash tax minimal in 2013 (£0-£3m guidance) due to: – Capital allowances in excess of depreciation – Utilisation of brought forward losses Cash tax for 2014 and 2015 also expected to be minimal for reasons above Notional corporation tax rates
Slide 61: Pensions
Pensions Key IAS 19 assumptions 30 June 31 Dec Scheme Assets 30 Jun 31 Dec 2013 2012 (£m) 2013 2012 Discount rate 4.70% 4.45% Equities 278 411 Inflation rate (RPI/CPI) 3.3%/2.3% 3.0%/2.2% Gov’t & Corp Bonds 1,207 1,198 Expected salary increases 4.3% 3.95% Property 137 105 Mortality assumptions LTI +
Slide 62: Balance sheet
Balance sheet £m 2013 H1 2012 H1 Fixed Assets – Property, plant & equipment 366 465 Fixed Assets – Intangibles / Goodwill 1,373 1,590 Fixed Assets – Deferred tax 62 - Total Fixed Assets 1,801 2,055 Assets less liabilities held for sale - 32 Working Capital Stock 114 149 Debtors 260 274 Creditors (34