Premier Foods plc · LSE:PFD
Premier Foods — H1 2014 Earnings Presentation
44 slides from Premier Foods's earnings presentation, Jul 22, 2014
Slide 1: Half Year Results 30th June 2014
Half Year Results 30th June 2014 22ndJuly 2014
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: Gavin Darby, Chief Executive Officer
Gavin Darby 1 Chief Executive Officer
Slide 4: Half Year Results 2014 - Introduction
1 2 3 4 HALF YEAR RESULTS 2014 - INTRODUCTION • Sales momentum impacted by challenging markets • Strong second half commercial plans in place • Continued focus on cost reduction • Trading profit expectations for the full year unchanged • Medium-term leverage target unchanged 4
Slide 5: Alastair Murray, Chief Financial Officer
2 Alastair Murray Chief Financial Officer
Slide 6: 2014 Half Year Results
1 2 3 4 2014 HALF YEAR RESULTS Power Brand sales (4.9%) Branded sales (6.1%) Trading profit +2.1% Adjusted PBT £17m Adjusted eps 2.3p Net debt £572m Power Brands Sales and Trading profit on underlying basis 6
Slide 7: Grocery Power Brands Impacted by Challenging Market Conditions
1 2 3 4 GROCERY POWER BRANDS IMPACTED BY CHALLENGING MARKET CONDITIONS Sales (£m) 2014 H1 2013 H1 Growth (%) Power Brands 241 253 (4.9%) Support brands 83 92 (9.2%) Total branded 324 345 (6.1%) Non-branded 40 43 (6.0%) Total 364 388 (6.1%) 7
Slide 8: Trading Profit Up 2.1%
1 2 3 4 TRADING PROFIT UP 2.1% £ millions 2014 H1 2013 H1 Underlying business sales 364 388 Underlying business Trading profit 48 47 Add: previous disposals 1 2 Continuing operations Trading profit 49 49 Amortisation of intangible assets (20) (24) Net interest on pension and administration costs (17
Slide 9: Interest
1 2 3 4 1 2 3 4 5 INTEREST £m 2014 H1 2013 H1 Bank debt interest 11 12 Bond interest 9 - Swap contract interest 2 3 Securitisation interest 1 2 Cash interest 23 17 Amortisation and deferred fees 8 10 Net regular interest 31 27 IAS 39 – fair valuation of financial instruments (1) (7) Write off of fin
Slide 10: Adjusted Earnings Per Share
1 2 3 4 ADJUSTED EARNINGS PER SHARE £m 2014 H1 2013 H1 % Underlying Trading profit 48 47 2.1% Net Regular Interest (31) (27) (12.8%) Adjusted PBT 17 20 (12.6%) Notional Tax @ 21.5%/ 23.25% (3) (5) 19.2% Adjusted earnings 14 15 (10.5%) Adjusted earnings per share (pence) 2.3 6.3 (63.6%) Net regular
Slide 11: Recurring Cash Flow
1 2 3 4 RECURRING CASH FLOW £m 2014 H1 2013 H1 Underlying Trading profit 48 47 Depreciation 8 9 Other non-cash items 2 1 Interest (22) (23) Taxation - - Pension contributions (37) (3) Capital expenditure (19) (15) Working capital (10) (15) Recurring cash flow (30) 1 Pension deficit contributions w
Slide 12: Net Debt
1 2 3 4 NET DEBT £m 2014 H1 2013 H1 Recurring cash inflow (30) 1 Disposed businesses cash flows (1) (4) Restructuring activity (4) (25) Operating cash flow from total Group (35) (28) Net disposal proceeds 16 91 Financing fees & other costs of finance (57) 0 Loan notes (16) - Purchase of own shares (
Slide 13: Lower Pensions Valuation Due to Improved Asset Returns
1 2 3 4 LOWER PENSIONS VALUATION DUE TO IMPROVED ASSET RETURNS IAS19 Accounting Valuation (£m) 30 June 2014 31 Dec 2013 Assets 3,365 3,219 Liabilities (3,901) (3,822) Gross deficit (536) (603) Net deficit (Tax @ 21.5%/23.25%) (421) (463) Discount rate 4.20% 4.40% Pension deficit contributions fixe
Slide 14: Gavin Darby, Chief Executive Officer
Gavin Darby 3 Chief Executive Officer
Slide 15: Category Focused Growth Strategy
1 2 3 4 CATEGORY FOCUSED GROWTH STRATEGY Designed to drive value growth DRIVING CATEGORY GROWTH CONSUMERS CUSTOMERS Capitalise on UK specific Maximise mutual value Category insights to BRANDS from customer identify growth partnerships Drive Category opportunities building innovation with pace COSTS
Slide 16: H1 Sales Performance
1 2 3 4 H1 SALES PERFORMANCE Milder weather and Changing retail Majority of FY14 Disciplined benign inflation landscape NPD in H2 approach to margin enhancing 388 promotions 364 H1 Sales down 6.1% 2013 H1 Weather Underlying Channel mix NPD Promotions Market share 2014 H1 market Milder weather a si
Slide 17: Many Grocery Categories Have Experienced Declines So Far This Year
1 2 3 4 MANY GROCERY CATEGORIES HAVE EXPERIENCED DECLINES SO FAR THIS YEAR Ambient Grocery (1.3%) Cake (4.1%) Desserts (3.6%) Flav & Seasonings (2.4%) Cooking Sauces (4.7%) Easy Eating (4.9%) Biscuits (3.7%) Breakfast Cereals (4.8%) Ambient Soup (12.0%) Canned Beans (9.9%) Canned Fruit (5.2%) Ice Cr
Slide 18: Historic Temperature Trends Show 2013 Divergence from Averages
1 2 3 4 HISTORIC TEMPERATURE TRENDS SHOW 2013 DIVERGENCE FROM AVERAGES GB Average Weekly Temperature - 2006-14 20 2013 H2 oC 18 Temperature milder than 16 long-term 14 average 12 10 2006-13 2013 8 2014 6 2013 H1 4 Temperature colder than 2 2014 and long- 0 term average Jan Feb Mar Apr May Jun Jul Au
Slide 19: Food Inflation Has Fallen Sharply Since the Start of 2014
1 2 3 4 FOOD INFLATION HAS FALLEN SHARPLY SINCE THE START OF 2014 3.8 3.9 3.7 3.5 3.5 3.5 3.5 3.4 3.0 2.5 2.1 1.9 1.8 1.5 1.2 0.8 Apr 13 May 13 Jun 13 Jul 13 Aug 13Sept 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Mar 14 Apr 14 May 14 Jun 14 These levels are the lowest since early 2010 Reflect t
Slide 20: Benign Input Cost Environment
1 2 3 4 BENIGN INPUT COST ENVIRONMENT Some variation across our categories, but overall the position is benign This trend expected to be unchanged for duration of 2014 Source: Mintec Datagain information service, January 2013 – June 2014 20
Slide 21: Significant Channel Mix Shift Is Taking Place
1 2 3 4 SIGNIFICANT CHANNEL MIX SHIFT IS TAKING PLACE Channel Size Market share% Movements, (£bn) 2014 vs 2013 Hard Discounters £7bn +1.1% High St. Discounters £5bn +0.3% Online £6bn +0.8% Convenience £15bn (0.1%) Large Supermarkets £68bn (2.0%) Others £3bn (0.2%) New formats growing at the expens
Slide 22: A More Disciplined Approach to Promotional Activity and Net Pricing Maintained
1 2 3 4 A MORE DISCIPLINED APPROACH TO PROMOTIONAL ACTIVITY AND NET PRICING MAINTAINED Typical Promotional Metrics Promotions ROI % Average Realised Pricing 2014 vs 2013 YTD 2014 vs 2013 YTD 2014 YTD 48.0% 120.0 115.0 110.0 105.0 100.0 36.0% 95.0 90.0 85.0 80.0 Jan Feb Mar Apr May Jun Volume Sales P
Slide 23: Overall, Own Label Is Broadly Flat in Our Categories
1 2 3 4 OVERALL, OWN LABEL IS BROADLY FLAT IN OUR CATEGORIES +1.1% +0.1% +0.1% (0.3%) (0.2%) (1.5%) Flavourings Sauces & Easy Total Cake Desserts & Seasonings Accomps Eating Own label remains a relatively small part of the Flavourings & Seasonings and Easy Eating categories Group’s branded mix i
Slide 24: Why Do We Look Forward to an Improved Second Half?
1 2 3 4 WHY DO WE LOOK FORWARD TO AN IMPROVED SECOND HALF? • Normal weather patterns I • Increased investment in consumer marketing I • Major re-launch of Mr. Kipling I • Strong innovation programme I • Continued progress in cost reduction and business I simplification • Investing in people and capa
Slide 25: Re-juvenating Our Biggest Brand
1 2 3 4 WE HAVE PREVIOUSLY TRAILED RE-JUVENATING OUR BIGGEST BRAND Consumers consumption of cake and their regard for Mr Kipling represents a strong platform to build category and brand growth 25
Slide 26: Mr. Kipling's New Campaign Will Drive Modernity and Relevance
1 2 3 4 MR. KIPLING’S NEW CAMPAIGN WILL DRIVE MODERNITY AND RELEVANCE Social Media Packaging Re-design TV Advertising Media Partnerships 26
Slide 27: New Packaging Demonstrates Step Change
1 2 3 4 NEW PACKAGING DEMONSTRATES STEP CHANGE Old New 27
Slide 28: An Integrated Media Campaign with Strong Creative and Digitally Led
1 2 3 4 AN INTEGRATED MEDIA CAMPAIGN WITH STRONG CREATIVE AND DIGITALLY LED 40” PACKAGING TV and Video on Demand AUDIO VISUAL PARTNERSHIPS DIGITAL SUPPORT Website PR and OOH ACTIVATION Earned Consumer Engagement #exceedinglygoodcakes Edible Cake Activation Mr Kipling Social networks IN STORE ACTIVAT
Slide 29: Flavourings & Seasonings New Product Development for H2
1 2 3 4 FLAVOURINGS & SEASONINGS NEW PRODUCT DEVELOPMENT FOR H2 BISTO BISTO OXO SIMPLY RECIPE PASTES RICH GRAVY PASTES HERBS & MORE • Concentrate casserole pastes • Premium tier gravy • Gel pot technology • “Real ingredients are wet” • “Real food” trend • Easy flavour transformer • TV/Multi-media ca
Slide 30: Further Second Half New Product Development
1 2 3 4 FURTHER SECOND HALF NEW PRODUCT DEVELOPMENT Cous Cous builds on success of Deli Box range Sharwood’s Mini sharing Poppadoms Five new exciting Homepride flavours Cadbury extension into ambient 1st TV advertising campaign in 10 years desserts for Q4 launch 30
Slide 31: Continued Progress on Business Simplification
1 2 3 4 CONTINUED PROGRESS ON BUSINESS SIMPLIFICATION 52% Over 95% of the way to achieving FY14 2,800 target 1,965 2014 target now increased to a 52% 1,460 1,350 reduction from 2012 position 2012 2013 2014 H1 2014 Target Supplier Reductions 73% Savings through greater economies of scale 62%
Slide 32: Good Payback Projects in the Pipeline
1 2 3 4 GOOD PAYBACK PROJECTS IN THE PIPELINE AUTO PALLETISER - MORETON REPLACEMENT FRYER - WORKSOP Business previously deferred some good quality payback projects Anticipated returns will deliver cost benefits in the supply chain over the medium-term Capex expected to be £40-£45m in FY14 32
Slide 33: Knighton Joint Venture - What This Solution Brings
1 2 3 4 KNIGHTON JOINT VENTURE – WHAT THIS SOLUTION BRINGS Joint expertise with Specialty Powders to drive I future growth Increases Group’s branded focus I Good news for 200 skilled employees I Improved efficiencies for Ashford site I Increased utilisation at Knighton I 2014 EBITDA impa
Slide 34: Successes in Our Supply Chain
1 2 3 4 SUCCESSES IN OUR SUPPLY CHAIN ‘The Grocer’ Gold awards logistics supplier of the year for improved efficiency and sustainability of transport operations British retail Consortium A+ audit achievement at Worksop site SAP Implementation at 2 sites in 2014 H1, last 2 sites to follow in H2 All m
Slide 35: Investing in People and Capabilities to Drive Future Growth
1 2 3 4 INVESTING IN PEOPLE AND CAPABILITIES TO DRIVE FUTURE GROWTH Category International Innovation Management DRIVING CATEGORY GROWTH CONSUMERS CUSTOMERS BRANDS COSTS PEOPLE SUSTAINABILITY Category insights Innovation core to Creation of strategic inform consumer delivering growth business
Slide 36: 2014 Outlook
1 2 3 4 2014 OUTLOOK Consumer environment to remain challenging for remainder of 2014 Expect an improvement in sales trend in H2 due to consumer marketing, innovation and an assumed return to average temperatures Continue to channel investment in supply chain capability, our people, consumer m
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Slide 38: Appendix
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Slide 39: Definitions
DEFINITIONS • Results for the Half Year ended 30 June 2014 are presented on an ‘Underlying business’ basis, unless otherwise stated. ‘Underlying business’ excludes the results of all previously completed business disposals • Trading profit is defined as operating profit before re-financing costs, re
Slide 40: Our Categories Are Particularly Sensitive to Temperature Fluctuations
OUR CATEGORIES ARE PARTICULARLY SENSITIVE TO TEMPERATURE FLUCTUATIONS 30.0% Category 25.0% Growth % 20.0% 15.0% 10.0% 5.0% Average 0.0% Temperature -10.0 -5.0 +0.0 +5.0 +10.0 Change oC -5.0% -10.0% -15.0% -20.0% Clear relationship between category growth and temperature movements Flavourings & S
Slide 41: Pro Forma Branded Sales Mix Now 89% Following Knighton Joint Venture
1 2 3 4 5 PRO FORMA BRANDED SALES MIX NOW 89% FOLLOWING KNIGHTON JOINT VENTURE Retained Grocery business P&L £m 2012 FY 2013 FY Power brands sales 533 544 Support brands sales 205 194 Total branded sales 738 738 Non-branded sales 111 94 Total sales 849 832 Branded sales mix 87.0% 88.7% Trading profi
Slide 42: Cash Tax Expected to Be Nil to Medium Term
CASH TAX EXPECTED TO BE NIL TO MEDIUM TERM Group has significant brought forward losses available Capital allowances in excess of depreciation Pension deficit contributions also allowable for tax Deferred tax asset £70m Notional corporation tax rates: – 2014: 21.5% – 2015: 20.25% – 2016: 2
Slide 43: Pensions - Combined UK Schemes
1 2 3 4 5 PENSIONS – COMBINED UK SCHEMES Key IAS 19 assumptions 30 June 2014 31 Dec 2013 Scheme Assets (£m) 30 June 2014 31 Dec 2013 Discount rate 4.20% 4.40% Equities 308 300 Inflation rate (RPI/CPI) 3.25%/2.15% 3.35%/2.35% Government bonds 397 516 Mortality assumptions LTI +1.0% LTI +1.0% Corporat
Slide 44: Balance Sheet
BALANCE SHEET 1 2 3 4 5 £m 2014 H1 2013 H1 Fixed Assets – Property, plant & equipment 172 366 Fixed Assets – Intangibles / Goodwill 1,267 1,373 Fixed Assets - Investments 43 - Fixed Assets – Deferred tax 70 62 Total Fixed Assets 1,552 1,801 Working Capital Stock 73 114 Debtors 134 260 Creditors (245