Premier Foods Plc · LSE:PFD
Premier Foods — FY2010 Earnings Presentation
68 slides from Premier Foods's earnings presentation, Feb 15, 2011
Slide 1: Premier Foods Preliminary Results Year ended 31 December 2010
Premier Foods Preliminary Results Year ended 31 December 2010 Tuesday 15 February 2011 1
Slide 2: Forward looking statements
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 statements. Forward look
Slide 3: Ronnie Bell, Chairman
Ronnie Bell Chairman 3
Slide 4: Agenda
Agenda • Ronnie Bell - Chairman – Initial Perspectives • Robert Schofield – Chief Executive Officer – 2010 Highlights • Jim Smart – Chief Financial Officer – 2010 Financial performance • Robert Schofield – Chief Executive Officer – Review of Brands & Markets – Premier Foods Going Forward 4
Slide 5: Initial Perspectives
Initial Perspectives • The Group possesses a number of strong platforms for growth • An impressive stable of leading brands • Significant scale and excellent operational capabilities • Strong and capable management team • Culture of continuous improvement 5
Slide 6: Board Priorities
Board Priorities • In 2010, there were three main priorities: – A robust financial plan to reduce the Group’s debt – Ongoing strategy focused on branded growth – Organic cash generation • For 2011, further focus on driving branded growth – Innovation – Brand building – Consumer marketing 6
Slide 7: Robert Schofield, Chief Executive Officer
Robert Schofield Chief Executive Officer 7
Slide 8: 2010 Trading Highlights
2010 Trading Highlights • Group branded volumes up 3.1% • Group sales declined 3.5% – Branded sales down 0.3% – Non-branded sales down 9.1% • Gaining volume branded market share1 • Good progress in Grocery, Hovis and Meat-free • Brookes Avana: a difficult year Delivering On Our Strategic Targets 1.
Slide 9: 2010 Trading Highlights
2010 Trading Highlights • Trading profit1 up 0.6% to £311m • Trading profit margin up 50bps to 12.1% • Adjusted profit before tax1 up 6.4% to £166m • Adjusted earnings per share1 up 6.4% to 5.0p • Recurring cash flow generation in 2010 of £124m • Disposals agreed - pro forma net debt now below £900m
Slide 10: Jim Smart, Chief Financial Officer
Jim Smart Chief Financial Officer 10
Slide 11: Progress In 2010
Progress In 2010 Business Strategy: • Grow branded sales faster than the market • Competitive advantage through scale • Efficiency benefits in supply chain and overheads Financial Strategy: • Cash generation • Derisk swap portfolio and pension arrangements • Diversify our sources of funding 11
Slide 12: Summary Group Profit and Loss
Summary Group Profit and Loss £m 2010 2009 % Branded sales 1,673 1,678 (0.3) Non-branded sales 894 983 (9.1) Total sales 2,567 2,661 (3.5) Gross profit 789 804 (1.9) Gross margin % 30.7% 30.2% 50bp Operating expenses (478) (495) 3.4 Trading profit 311 309 0.6 Trading profit margin % 12.1% 11.6% 50bp
Slide 13: Summary Group Profit and Loss
Summary Group Profit and Loss £m 2010 2009 % Trading profit 311 309 0.6 Less: Meat-free Trading profit (16) (8) 93.8 Exceptional items - (46) - Amortisation of intangible assets (79) (75) (5.1) Pension financing (charge) / credit 4 (2) - Fair value movements on forex derivatives (2) (6) 68.3 Impairm
Slide 14: Segmental Analysis
Segmental Analysis % Growth Sales Non- Branded branded Total Grocery (0.6) (5.0) (1.8) Hovis 1.2 (16.8) (7.3) Brookes Avana - (4.7) (4.7) Meat-free (1.9) - (1.9) Total (0.3) (9.1) (3.5) Trading profit 2010 2009 Growth £m £m % Grocery 256 255 0.3 Hovis 39 31 25.9 Brookes Avana - 15 (100.0) Meat-free
Slide 15: Grocery Trading Profit
Grocery Trading Profit £m 300 280 16 (18) 21 (4) (10) 260 255 (5) 256 240 220 200 2009 Trading Volume/mix Procurement Pricing net of Manufacturing Marketing Other admin 2010 Trading profit promotions, cost efficiencies expenses costs profit inflation • Positive mix offset by Non-branded volume decli
Slide 16: Hovis Trading Profit
Hovis Trading Profit £m 55 27 39 45 31 (10) 35 (9) 25 15 5 2009 Trading profit Volume / mix Cost & pricing Investment & 2010 Trading profit efficiency savings • Volume growth in Hovis offset by declines in Non-branded bread and milling • Pricing adverse from promotional intensity and negative effect
Slide 17: Recurring Cash Flow
Recurring Cash Flow £m 2010 2009 Trading profit 311 309 Depreciation 51 52 Other non-cash items 7 3 Interest (131) (152) Taxation (2) 1 Pension contributions (57) (52) Regular capital expenditure (68) (83) Working capital 13 (29) Cash flow pre non-recurring items 124 49 • Interest lower as a result
Slide 18: Cash Flow
Cash Flow £m 2010 2009 Cash flow pre non-recurring items 124 49 Settlement of prior year exceptional cash costs (7) (38) Integration capital expenditure - (2) Operating cash flow 117 9 Disposal proceeds 9 54 Net equity proceeds - 380 Settlement of swap obligations (8) - Financing fees, discontinued
Slide 19: Financial Obligations - Debt
Financial Obligations - Debt £m 2010 2009 % Gross borrowings 1,282 1,382 7.3 Deferred issuance costs (21) (18) (16.7) Net debt 1,261 1,364 7.6 EBITDA 362 361 0.3 Net debt / EBITDA 3.48x 3.78x 0.30x Average gross borrowings 1,439 1,561 7.8 Securitisation 90 90 - Average debt 1,529 1,651 7.4 Average d
Slide 20: Financial Obligations - Other
Financial Obligations - Other £m 2010 2009 % Leases Obligations Operating lease (annual payments) 28 30 6.7 Finance leases (assets) 19 1 - Financial instruments Mark to market – hedging (125) (80) (56.3) Agreed settlement (78) 0 - Non – economic hedging (32) (119) 73.1 Total (235) (199) (18.1) Poten
Slide 21: Financial Obligations – Covenants & Pensions
Financial Obligations – Covenants & Pensions Banking covenants • Swap restructuring removes risk to interest covenant • Covenant headroom – Leverage 24%, Interest 19% Pension fund • Final salary pension fund closure agreed – restricts rate at which liabilities escalate – Career average scheme for ex
Slide 22: Effect Of Disposals Of Meat-free and Canning
Effect Of Disposals Of Meat-free and Canning Net debt • £370m net proceeds would reduce year end net debt1 to below £900m • Net debt / EBITDA would fall to 2.87 times Average debt • Average debt would reduce to c£1,159m • Average debt / EBITDA would fall to 3.74 times £ms Net Debt / EBITDA 1,767 6.0
Slide 23: Impact Of Meat-free and Canning Disposals
Impact Of Meat-free and Canning Disposals £m 2010 Disposals 2010 pro forma Sales 2,567 463 2,104 EBITDA 362 51 311 Trading profit 311 44 267 Interest (145) (13) (132) Adjusted PBT 166 31 135 Adjusted EPS 5.0 0.9 4.1 Cash flow before non-recurring items 124 42 82 • EBITDA reduced but growth prospects
Slide 24: Diversifying sources of funding
Diversifying sources of funding • Attractive credit rating obtained – Ba2 (stable outlook) – Moodys – BB (stable outlook) – S&P, Fitch • Bond issue in due course will lengthen maturity of funding • Bank finance will be smaller and will lead to a cheaper and more stable financial structure Excellent
Slide 25: Conclusion
Conclusion Financial Strategy set out during 2010 had three priorities • Focus on cash generation 9 • De-risk swap portfolio and pensions 9 • Diversify our sources of funding 9 Financial Position Now Fully Addressed – Time To Focus On The Business Strategy & The Upside Available For Shareholders 25
Slide 26: 2010 Review & Premier Foods Going Forward
Robert Schofield Chief Executive Officer 2010 Review & Premier Foods Going Forward 26
Slide 27: Strategic Development
Strategic Development FY 2010 Premier Market Branded growing volumes ahead of market 3.1% 0.9% 9 Drive brands growing volumes 1-2% ahead of market 4.9% (2.2%) 9 Core brands growing volumes in line with market (2.0%) 0.3% X Defend brands growing volumes in line with market 2.6% 0.8% 9 Retailer brand
Slide 28: Review of Brands and Markets
Review of Brands and Markets 28
Slide 29: Market Performance In Our Categories
Market Performance In Our Categories Total value of our categories £7.5bn +0.9% (0.8%) (5.0%) Volume % Growth/(Decline) 2010 vs 2009 Total Market Brands Retailer Brand (0.3%) (0.2%) (0.5%) Value % Decline 2010 vs 2009 Total Market Brands Retailer Brand Brands Are Outperforming Retailer Brand In Our
Slide 30: Performance In Branded Categories
Performance In Branded Categories Total value of our branded categories £5.8bn +3.1% Volume % Premier’s Volume Growth +0.9% Market Share Has 2010 vs 2009 Increased 0.5ppt Premier Market (0.3%) (0.2%) Premier’s Value Value % Market Share Has Decline Declined 0.4ppt 2010 vs 2009 Premier Market Deliver
Slide 31: Branded Performance In Our Grocery Categories
Branded Performance In Our Grocery Categories Total value of our Grocery categories £5.6bn +2.7% Volume % Premier’s Volume Growth +1.3% Market Share Has 2010 vs 2009 Increased 0.9ppt Premier Market +1.5% Premier’s Value Value % Market Share Has Growth/(Decline) (0.6%) Declined 0.2ppt 2010 vs 2009 Pr
Slide 32: Branded Performance In Our Bread Category
Branded Performance In Our Bread Category Total value of pre-packaged bread is £1.7bn +3.9% Volume % (3.9%) Premier’s Volume Growth/(Decline) Market Share Has 2010 vs 2009 Increased 0.3ppt Premier Market 1.2% Value % (5.2%) Premier’s Value Growth/(Decline) Market Share Has 2010 vs 2009 Declined 0.8p
Slide 33: Value Brand Share %
33 24.5 32.5 19.8 12.0 4 w/e 22 Jan, 11 Source: Symphony IRI Infoscan Total Grocery Outlets, 4 w/e 22 January 2011 4 w/e 27 Nov, 10 4 w/e 2 Oct, 10 4 w/e 7 Aug, 10 Value Share of Pre-packaged Bread, 4 w/e 12 Jun, 10 4 w/e 17 Apr, 10 Own Label Total Grocery Outlets 4 w/e 20 Feb, 10 4 w/e 26 Dec, 09 K
Slide 34: Branded Sales Growth
Branded Sales Growth 10 vs 09 Growth % £m Sales Value Volume Drive brands 865 3.0 4.9 Core brands 391 (2.5) (2.0) Defend brands 417 (4.6) 2.6 Total branded 1,673 (0.3) 3.1 Non-branded 894 (9.1) (7.2) Total 2,567 (3.5) (2.7) • Strong volume and value performance from Drive brands driven by successful
Slide 35: 2010 Headwinds
2010 Headwinds • Increased promotional activity • Input cost increases • Brookes Avana profit decline 35
Slide 36: Promotional Activity Across The Market
Promotional Activity Across The Market Proportion of total market sales on promotion 36 2010 average: 34 32.8% 2009 average: 32 30.4% 2008 average: % 30 28.1% 28 26 24 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2
Slide 37: Consumer Spending Bought On Promotion By Type
Consumer Spending Bought On Promotion By Type 20.0% 16.1% 16.5% 14.9% 15.0% 12.4% 10.0% 5.0% 1.7% 1.5% 0.0% Single Item Price Cuts Multiple Purchasing All Other Promotions Deals 2009 2010 Growth In Multiple Deals Reflects Increasing Consumer Confidence Source: Kantar Worldpanel Purchase, 52 w/e 26 D
Slide 38: UK Food Commodity Price Index
UK Food Commodity Price Index Significant 15% increase in 2008 Key Increases: Recent increases but at lower levels • Wheat 10% • Oils Historically benign food • Cocoa inflation • Cartons 5% 0% Jan- Jun- Nov- Apr- Sep- Feb- Jul- Dec- May- Oct- Mar- Aug- Jan- Jun- Nov- 05 05 05 06 06 07 07 07 08 08 09
Slide 39: Brookes Avana
Brookes Avana • Sales reduced by 4.7% in year (£11m) due mainly to mix, lower promotional activity and lower volumes on existing contracts • The ready meals sector continues to be oversupplied • Significant increases in number of tenders and cost of business retention • Under recovery of input cost
Slide 40: 2011 Trading Outlook
2011 Trading Outlook Our focus in 2011 will be to: • Continue to build branded market volume share • Achieve a better balance between volume & value sales growth • Grow our percentage of Grocery branded sales from new and improved products from the current 5% as our innovation pipeline matures • Con
Slide 41: Premier Foods Going Forward
Premier Foods Going Forward 41
Slide 42: What Have We Recently Divested?
What Have We Recently Divested? • Meat-free – Branded sales of £129m – Good growth profile although not in 2009/2010 – Set up as a standalone business • Canning – Total sales of £334m – Sales 57% Non-branded – Business operating in declining categories – Delivered robust cash flows – Margins were ma
Slide 43: Grocery Sales
Grocery Sales Pre Canning Disposal Post Canning Disposal Total branded 74.1% Total branded 82.3% Business to Business to business business 1% 2% Non Non branded Drive 16% branded Drive 26% 25% 32% Defend 23% Defend Core 23% 25% Core 27% Increased Grocery Branded Sales To 82% 43
Slide 44: Revised Shape of Portfolio
Revised Shape of Portfolio 2010 2010 Brand Disposals Actual Pro forma Drive brands 865 120 745 Core brands 391 61 330 Defend brands 417 95 322 Total branded 1,673 276 1,397 Non-branded 894 187 707 Total 2,567 463 2,104 Branded sales mix 65.2% 59.6% 66.4% Maintain Objective To Outperform Market By 0-
Slide 45: The Group Vision and Strategy Is Unchanged
The Group Vision and Strategy Is Unchanged Our Vision is: “To be the best in British food with brands you really love” Our Strategy is unchanged: • To invest behind our brands to drive organic branded sales growth • To leverage our scale to support growth – Consumer insight – Enhanced customer relat
Slide 46: Key Targets Remain Unchanged
Key Targets Remain Unchanged • Volume growth targets compared to market performance: – Drive brand volumes to grow 0-2% ahead of the market – Core, Defend and Non-branded in line with the market – Total sales to progress between 0-2% ahead of the market • Grocery manufacturing controllable costs red
Slide 47: Return To A One Premier Approach
Return To A One Premier Approach • Prior to the RHM acquisition Premier Foods operated a highly centralised structure • This enabled: – Quick decision making – A clear focus on branded growth – Leveraged scale alongside low overheads • This major RHM acquisition required a move to a divisional organ
Slide 48: New Organisational Structure
New Organisational Structure • Functional alignment across the Group • Tim Kelly, Chief Operating Officer: – Responsibility for managing all brands • We have created new Group Executive roles: – Group Marketing Director - Jon Goldstone – Group Technical & Innovation Director – Paul Kitchener • Bette
Slide 49: Growth And Innovation
Growth And Innovation • We have spent much of the past 4 years managing restructuring : – Commercial – Manufacturing and logistics – Financial and divestments • We are now moving to greater focus on profitable growth • The key drivers will be : – Consumer marketing support in line with strategy – In
Slide 50: Grocery Savoury Activity
Grocery Savoury Activity Bisto Instant Roast Gravy Oxo Squeezy Stock • Launched February • Launching March Batchelors Pasta & Noodle Pot Branston Salad Cream with a Sharwoods Stir Fry Pouch Shots Twist • Launched January • Rolling out in 2011 • Launching Easter 50
Slide 51: Grocery Sweet Activity
Grocery Sweet Activity Mr Kipling Ambrosia • Ant & Dec ‘Push the Button’ • Great British Puds launched January sponsorship from 12th February • Free Range Eggs • Redesign in store from February across range 51
Slide 52: Hovis Activity
Hovis Activity • Hearty Oats Loaf • Victoria Pendleton – 2010 Sales £3.1m – Continuation of ambassador role – Can help maintain cholesterol – Promoting health credentials through levels ‘Stop Snacking’ campaign – Approved by HEART UK – 2011 Q1 TV advertising 52
Slide 53: The New Deal
The New Deal • EBITDA of more than £300m pa is stable and we have a strategy to grow it • From this we can pay: – Pension deficit contributions which at c£40m pa are stable and affordable – Cash interest payment in 2011 of c£100m and declining in future – Cash tax will remain minimal for the short t
Slide 54: The Best in British Food with Brands You Really Love
The Best in British Food with Brands You Really Love 54
Slide 55: Appendices
Appendices 55
Slide 56: Definitions
Definitions Trading profit is defined as operating profit from continuing operations before exceptional items, amortisation and impairment of intangible assets, the revaluation of foreign exchange and other derivative contracts under IAS39 and pension credits or charges in relation to the difference
Slide 57: Group Gross Margin Bridge
Group Gross Margin Bridge 34% 2.5% (2.0%) 33% 32% 30.2% 30.7% 31% 30% 29% 28% 2009 Gross margin Branded growth/mix/efficiency Price/commodity/promos 2010 Gross margin • Branded growth/mix/efficiency: Improved mix with branded sales now 65.2% of total sales. Continued efficiencies in both procurement
Slide 58: Operating Expenses
Operating Expenses 510 495 £m (2) 500 (12) 478 490 (3) 480 470 2009 Consumer & In- Distribution Administration 2010 store Marketing • Marketing costs increased in Grocery with reduction in Hovis and Meat-free • Distribution costs reduced by improved efficiencies, lower fuel costs and lower volumes •
Slide 59: Value Brand Share %
Source: Symphony IRI Infoscan Major Mults incl Co-op, 4 w/e 22 Jan 11 59 27.3 31.4 16.8 14.1 4 w/e 22 Jan, 11 4 w/e 25 Dec, 10 4 w/e 27 Nov, 10 4 w/e 30 Oct, 10 4 w/e 2 Oct, 10 4 w/e 4 Sep, 10 Value Share of Pre-packaged Bread, 4 w/e 7 Aug, 10 4 w/e 10 Jul, 10 Major Multiples including Co-op 4 w/e 1
Slide 60: Interest Charges
Interest Charges £m 2010 2009 % Net debt interest (58) (78) 25.6 Securitisation interest (2) (2) 0.0 Swap contract interest (71) (62) (14.5) Cash interest (131) (142) 7.7 Amortisation and deferred fees (14) (13) (7.7) Regular net interest charge (145) (155) 6.5 Unwind of provision discount (1) (1) I
Slide 61: Swap Instruments
Swap Instruments Instrument Type Nominal Value Coupon % Maturity MTM £m £m Cap & collar swaps 350 5.75 June 2012 24.5 Vanilla 50 4.60 May 2013 3.7 Vanilla 100 5.00 June 2013 14.0 Vanilla 575 6.87 Dec 2013 159.9 1,075 6.21 202.1 Agreed settlement amounts due £m (gross of tax) 2012 33 2013 79 112 61
Slide 62: Taxation
Taxation • 2010 P&L credit on continuing activities after prior year adjustments - £11.6m, a rate of 18.1%, • The current year rate is 28.1% after removing the impact of the goodwill impairment charge of £125m • Cash tax rates minimal as a result of: – Capital allowances in excess of depreciation ch
Slide 63: Covenants
Covenants £m 2010 2011 2012 Covenant Net debt 1,254 Covenant EBITDA 365 Covenant Interest 128 Net debt / EBITDA test 4.50 3.90 3.45 Net debt / EBITDA actual 3.44 Net debt / EBITDA headroom % 24% EBITDA / Interest test >2.40 >2.75 >3.30 EBITDA / Interest actual 2.85 EBITDA / Interest headroom % 19% 6
Slide 64: Pension Valuation And Assumptions
Pension Valuation And Assumptions Pension Deficit 31 Dec 2010 31 Dec 2009 (£m) Assets 2,799 2,530 Liabilities (3,120) (2,959) Deficit (321) (429) Assumptions 31 Dec 2010 31 Dec 2009 Discount rate 5.45% 5.80% Inflation (derived) 3.45% 3.50% Future pension increases 2.20% 2.20% Expected salary increas
Slide 65: Pension Service Cost
Pension Service Cost £m 2010 2009 Current service cost 21 12 Past service credits (12) - Pension cost in Trading Profit 9 12 Other cash contributions 12 12 Administration costs & PPF levy 7 8 Regular cost 28 32 Deficit contribution 38 33 Total pension cost 66 65 65
Slide 66: Balance Sheet
Balance Sheet £m 2010 2009 Fixed assets Property, plant & equipment 539 635 Intangibles / goodwill 2,060 2,480 Total fixed assets 2,599 3,115 Working capital Stock 135 214 Debtors 356 347 Creditors (496) (485) Total working capital 2,594 76 Net debt Gross borrowings (1,282) (1,383) Cash 2 18 Total n
Slide 67: Impact Of Disposals - P&L
Impact Of Disposals - P&L £m 2010 Disposals 2010 Pro forma Branded sales 1,673 276 1,397 Non-branded sales 894 187 707 Total sales 2,567 463 2,104 Gross profit 789 92 697 Gross margin % 30.7% 19.9% 33.1% Operating expenses (478) (48) (430) Trading profit 311 44 267 Trading profit margin % 12.1% 9.5%
Slide 68: Impact Of Disposals - Cash Flow
Impact Of Disposals - Cash Flow £m 2010 Disposals 2010 Pro forma Trading Profit 311 44 267 Depreciation 51 7 44 Other non-cash items 7 - 7 Interest (131) (13) (118) Tax (2) - (2) Pension (57) - (57) Regular capital expenditure (68) (3) (65) Working capital 13 7 6 Cash flow before non-recurring items