Premier Foods Plc · LSE:PFD
Premier Foods — FY2009 Earnings Presentation
61 slides from Premier Foods's earnings presentation, Feb 16, 2010
Slide 1: Premier Foods Preliminary Results Year ended 31 December 2009
Premier Foods Preliminary Results Year ended 31 December 2009 Tuesday 16 February 2010 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: Robert Schofield, Chief Executive Officer
Robert Schofield Chief Executive Officer 3
Slide 4: Agenda
Agenda • Robert Schofield – 2009 Highlights • Jim Smart – 2009 Financial performance • Robert Schofield – Group strategy – 2009 Trading review – Outlook 4
Slide 5: 2009 Highlights
2009 Highlights • Group sales increased 2.2% – Group sales up 3.5%, excluding bulk flour deflation – Branded sales ahead 6.5% – Non branded sales down 4.4% • Gaining branded market share1 - up 0.5% to 24.7% of £7.6bn market • Trading profit2 up 4.5% to £323m • Adjusted profit before tax2 £168m • Suc
Slide 6: Jim Smart, Chief Financial Officer
Jim Smart Chief Financial Officer 6
Slide 7: Initial Perspectives
Initial Perspectives • Strength of branded portfolio • Innovation pipeline • Scale with customers and suppliers • Efficiency opportunities • Cash and working capital potential 7
Slide 8: Enhanced Disclosure
Enhanced Disclosure • Enabling greater insight into business performance • Provide key metrics to monitor progress of strategy • Sales by segment will be further split into branded and non-branded • Gross margin analysis to demonstrate effect of branded sales growth and the benefits of scale • Analy
Slide 9: Summary Group Profit and Loss
Summary Group Profit and Loss £m 2009 2008 % Branded sales 1,678 1,576 6.5 Non branded sales 983 1,028 (4.4) Total sales 2,661 2,604 2.2 Gross profit 809 798 1.4 Gross margin % 30.4% 30.6% -0.2pp Operating expenses (486) (489) 0.6 Trading profit 323 309 4.5 Trading profit margin % 12.1% 11.9% +0.2 p
Slide 10: Summary Group Profit and Loss
Summary Group Profit and Loss £m 2009 2008 % Operating profit/(loss) 177 (41) - Net regular interest (155) (126) (23.0) Other interest 25 (238) - Profit/(loss) before tax 47 (405) - Tax (7) 31 - Profit/(loss) after tax 40 (374) - Adjusted profit before tax 168 183 (8.2) Adjusted earnings per share 5
Slide 11: Group Gross Margin Bridge
Group Gross Margin Bridge 33% (1.6%) 1.4% 32% 30.6% 31% 30.4% 30% 29% 28% 2008 Gross margin Branded growth/mix/efficiency Price/commodity/promos 2009 Gross margin • Branded growth/mix/efficiency: Branded sales growth, improved product mix and increased efficiency in procurement. Efficiencies offset
Slide 12: Operating Expenses
Operating Expenses 510 9 2 (14) £m 500 489 486 490 480 470 2008 Consumer & In- Distribution Administration 2009 store Marketing • Increased in-store marketing spend has supported market share gains • Tight control of distribution costs • Admin costs have benefited from lower pension and bonus costs
Slide 13: Segmental Analysis
Segmental Analysis Business to business, 7% % Growth Sales Non Branded Branded Total Retailer Grocery 5.4 3.2 4.8 brand, 30% Hovis 11.6 (16.5) (3.6) Chilled 1.6 5.4 3.9 Total 6.5 (4.4) 2.2 Branded, 63% Trading profit 2009 Growth Margin £m % % Grocery 256 2.0 16.3 Hovis 42 75.0 5.7 Chilled 25 (26.5)
Slide 14: Grocery Trading Profit
Grocery Trading Profit 300 28 (30) £m 280 8 (6) 11 256 260 251 (6) 240 220 200 2008 Trading Volume/mix Procurement Pricing net of Manufacturing Marketing Other admin 2009 Trading profit promotions, cost costs expenses savings profit inflation • Volume/mix – Benefit of branded growth offset by lower
Slide 15: Hovis Trading Profit
Hovis Trading Profit 60 £m 13 (9) 50 42 14 40 30 24 20 2008 Trading profit Volume / mix Cost & Pricing Investment 2009 Trading profit • Increased branded bakery volumes and mix benefits in bakery and milling delivered £14m • Lower input costs and manufacturing efficiencies partly offset by combinati
Slide 16: Recurring Cash Flow
Recurring Cash Flow £m 2009 2008 Trading profit 323 309 Depreciation 52 51 Interest (152) (105) Taxation 1 - Pension deficit contributions (52) (41) Regular capital expenditure (83) (83) Working capital (29) (27) Cash flow pre non-recurring items 60 104 • Working capital outflow reflects clearance o
Slide 17: Cash Flow
Cash Flow £m 2009 2008 Cash flow pre non-recurring items 60 104 Operating exceptional cash costs (52) (122) Integration capital expenditure (2) (78) Operating cash flow 6 (96) Disposal proceeds 54 26 Dividends - (55) Net equity proceeds 380 - Financing fees, discontinued operations & other non-cash
Slide 18: Financial Obligations
Financial Obligations £m 2009 2008 % Gross borrowings 1,383 1,777 22.2 Deferred issuance costs (18) (10) (80.0) Net debt 1,365 1,767 22.8 EBITDA 375 360 4.2 Net debt / EBITDA 3.6x 4.9x +1.3x Pro forma average gross borrowings 1,561 N/A Net regular interest charge 155 126 (23.0) Financial instruments
Slide 19: Conclusions
Conclusions • 2009 results reflect good progress against strategy • Financial situation secured • Set out key measures to demonstrate further progress • Driving sales growth and delivering efficiency benefits will deliver sustained earnings growth • Financial discipline will deliver cash generation
Slide 20: Robert Schofield: Group Strategy & 2009 Performance
Robert Schofield Chief Executive Officer Group Strategy & 2009 Performance 20
Slide 21: Where Are We Now?
Where Are We Now? 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Building Scale…. Transformation & Integration ….Leveraging Scale • Branded acquisitions • Commercial integration • Organic growth through branded innovation • Non-core disposals • SAP implementation • Commercial strength • Organic c
Slide 22: What We Have Created
What We Have Created • Business created has significant competitive advantages – Deeper, broader, consumer and customer insight – Scale brands – Operate on a significant scale with customers – Bigger, better invested factories – Lower cost, more flexible distribution capabilities • And a resilient o
Slide 23: Group Vision and Strategy
Group Vision and Strategy 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 relationships • To lev
Slide 24: Business Model Going Forward
Business Model Going Forward As we execute the strategy the business model will have the following attributes • Branded sales growth • Branded mix development (% of brand/non branded) driving margin progression • Innovation driving an increasing % of our total growth • Cost reduction – Procurement 7
Slide 25: What Does It Mean?
What Does It Mean? As we execute our model we would expect increasingly to see over the next three years: • Growth ahead of our markets • Cost improvement that will more than cover inflation • Admin cost reduction to fund increased marketing expenditure • Cash generation of c.£100m pa 25
Slide 26: How Are We Now Delivering Branded Sales Growth?
How Are We Now Delivering Branded Sales Growth? • Category and Brand prioritisation • Consumer and Shopper Insight – 20 categories across UK Grocery • Scale in UK Food – Number one position in £24bn ambient grocery • Innovation 26
Slide 27: Category And Brand Prioritisation
Category And Brand Prioritisation • 2 step process – Identify the categories where we can grow the fastest – Identify the brands in those categories that we will invest in the most • 3 Category groupings – Drive • Large categories where we believe we can win • Categories that are showing strong grow
Slide 28: Drive Categories
Drive Categories Retail Premier’s Category Sales 3yr category growth rate value share Why is this a drive category? £m Value Volume Very large category. We have the Hovis Bread 1,826 9% 0% 26.6% brand. Cooking Fast growing large category where we are 1,041 7% 3% 18.1% Sauces the number 2 manufacture
Slide 29: Core Categories and Defend Categories
Core Categories Retail Premier’s Category 3yr category growth rate Why is this a core category? Sales value share £m Value Volume Convenience 298 6% 2% 44.8% Strong share position Meals Pickles & 131 6% 0% 36.8% Strong share position Relish Gravy 126 3% 0% 74.1% Strong share position Strong share po
Slide 30: Brand Volume Growth
Brand Volume Growth Historical market Premier’s medium Premier’s % of total Brands volume growth term volume Sales (£m) sales rate implied growth Drive 840 32 1% 2-4% Core 400 15 2% 2% Drive and 1,240 47 1-2% 2-4% Core Defend 438 16 0% 0% Non branded 983 37 -1% -1% Total 2,661 100 1% 1-3% Assuming H
Slide 31: What Is Happening In Our Markets?
2009 What Is Happening In Our Markets? 31
Slide 32: Total Grocery Market
Total Grocery Market Grocery Market Movement - 2009 vs 2008 FY Total market size £65.8bn Value Growth Volume Growth 7.0% 4.8% 5.3% 3.3% (1.5%) 1.0% Brands Retailer Total Retailer Total brands market Brands brands market Brands Are Winning In The Market Place Source: TNS Worldpanel, Total Grocery, YT
Slide 33: Performance In Our Categories
Performance In Our Categories Total value of our categories £7.6bn Market Volume (1.3%) Volume Market Share (0.2%) (1.5%) 2009 vs 2008 % Movement +1.7% Premier Brands All Other Brands Retailer Brand Market Value +4.5% Value (0.5%) Market Share 2009 vs 2008 % Movement +0.5% +0.0% Premier Brands All O
Slide 34: Promotional Activity Across The Market Has Increased
Promotional Activity Across The Market Has Increased During The Recession Proportion of total market sales on promotion 34 33 32 31 2009 average: 30 30.4% % 29 28 27 2008 average: 26 28.1% 25 24 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008
Slide 35: Branded Sales Growth
Branded Sales Growth Sales 09 vs 08 Growth % Brand £m Value Volume • Drive brands grew by Loyd Grossman 42 20.0 10.5% in value and 16% Sharwood’s 62 5.1 in volume Mr. Kipling 132 3.1 Ambrosia 83 9.2 • All Drive brands grew Hartley’s 54 17.4 volumes faster than Hovis 349 15.2 Quorn 118 4.4 their cate
Slide 36: Grocery
Grocery £m 2009 2008 YoY % Sales Branded UK 1,038 979 6.0% Ireland 115 115 0.0% Non branded 421 408 3.2% Total 1,574 1,502 4.8% Trading profit 256 251 2.0% Branded sales 73.3% 72.8% +0.5pp • Sales – Strong branded growth in UK behind Drive and Core brands, volumes ahead 3.5% – Ireland down 7% in €,
Slide 37: Growth Through Innovation
Growth Through Innovation Brand strategy since acquisition focused onto individual desserts to meet consumer need for snack and lunchbox meal occasions 2003 2009 +9.2% Turnover £53m £83m 09 v 08 ‘Splat’ pots Layer Pots Improved Chocolate & Ambrosia became Layer Pots extension + Crumble and Jelly rec
Slide 38: Growth Through Brand Stretch
Growth Through Brand Stretch Brand extension from sweet pickle category into adjacent categories – Sales now £40m, CAGR of 12.5% • Sour pickles • Table sauces • Relishes • Flavoured mayonnaise +39.6% Also successfully launched into baked beans – Sales now £34m 09 v 08 Sales 2002 Sales 2009 £19m £74m
Slide 39: Scale With Customers - Loyd Grossman
Scale With Customers - Loyd Grossman 2003 2009 Turnover £19m £42m +20.0% 09 v 08 • Loyd Grossman is the leading premium cooking sauce brand • Needed step change in penetration to drive further growth • Scale with customers enabled superior execution on major promotional and in- store marketing progr
Slide 40: Grocery Innovation
Grocery Innovation Ambrosia – Sales up 9% Branston – Sales up 40% – New Crumble and • New Mayo with a twist Jelly puds Sharwoods – Sales up 5% • New Biryani • New campaign on Chinese New Year Loyd – Sales up 20% • Massive step up in household penetration • New Al forno Oven bake sauces Mr Kipling –
Slide 41: Great Little Ideas
Great Little Ideas • What are Great Little Ideas? – A series of hints and tips for using our favourite brands in a whole range of simple recipes – Communicated on TV, on-pack, in-store and through a GLI website – To give consumers quick, easy, surprising solutions to help them break out of standard
Slide 42: How Consumers Will See Great Little Ideas
How Consumers Will See Great Little Ideas On TV Front and April- back of pack Nov In-store Recipe cards On-line 42
Slide 43: Hovis
Hovis £m 2009 2008 YoY % Sales Branded bakery 370 326 13.5 Non branded bakery 179 212 (15.6) Milling 193 232 (16.8) 742 770 (3.6) Trading profit 42 24 75.0 Branded sales % 53.0% 45.8% +7.2pp • Hovis brand market share increased by 3.0ppts year on year to 25.9%1 • Hovis branded bread sales up +15.2%
Slide 44: Value Share Of Pre-packaged Bread
Value Share Of Pre-packaged Bread, Total Grocery Outlets 35 32.6 30 26.1 Hovis relaunch Value Brand Share % 25 18.8 20 15 12.1 10 4 w/e 6 Oct, 07 4 w/e 4 Nov, 06 4 w/e 16 Jun, 07 4 w/e 26 Jan, 08 4 w/e 15 Jul, 06 4 w/e 24 Feb, 07 4 w/e 17 May, 08 4 w/e 27 Dec, 08 4 w/e 28 Nov, 09 4 w/e 6 Sep, 08 4 w
Slide 45: Value Share Of Pre-packaged Bread, Major Multiples
Value Brand Share % 10% 15% 20% 25% 30% 35% 4 w/e 31 Dec, 05 4 w/e 25 Mar, 06 4 w/e 17 Jun, 06 4 w/e 9 Sep, 06 4 w/e 2 Dec, 06 4 w/e 24 Feb, 07 Hovis 4 w/e 19 May, 07 4 w/e 11 Aug, 07 4 w/e 3 Nov, 07 Warburtons 4 w/e 26 Jan, 08 4 w/e 19 Apr, 08 4 w/e 12 Jul, 08 Kingsmill 4 w/e 4 Oct, 08 Major Multip
Slide 46: Hovis Strategy
Hovis Strategy • Vision: “To be the biggest and most loved brand in bakery” • The strategy which underpins this: – To build the Hovis brand – Deliver volume growth – Price realisation – Maintain a flat to declining cost base – Retailer brand and milling helps support customer relationships, efficien
Slide 47: Hovis – 2010 Plans
Hovis – 2010 Plans • 100% British Wheat • 3 year partnership with Olympic Gold – Massive £5m marketing campaign Medallist Victoria Pendleton – Our biggest ever TV burst from 12th – Wholemeal Challenge February – Promoting the health benefits of bread – Poster campaign from 1st March and encouraging
Slide 48: Chilled
Chilled £m 2009 2008 YoY % Sales Brookes Avana 214 203 5.4 Meat-free 131 129 1.6 Total 345 332 3.9 Trading profit 25 34 (26.5) Branded sales % 38.0% 38.9% (0.9pp) • Highlights in 2009: – Brookes Avana sales growth from contract wins in Italian meals / Christmas puddings – Quorn sales up 4.4% but pro
Slide 49: Chilled Strategy
Chilled Strategy Meat-free: • Significant growth potential in medium term – Increased consumption by vegetarians – Increased consumption by meat reducers/healthy eaters – International opportunity • A revised manufacturing strategy will repair margins Brookes Avana: • A flexible and highly utilised
Slide 50: 2010 Outlook
2010 Outlook • In 2010, we expect to continue to grow our brands and will deliver efficiency savings over and above synergies already achieved • We remain cautious about the consumer environment for 2010 but absent any adverse change we expect to make further progress 50
Slide 51: Summary
Summary • Restructuring complete: organic growth going forward • We delivered market share gains, Trading profit and cash generation in 2009 • Strategy to grow our brands, maintain our non branded business and more cost reduction • Focus on cash generation and debt reduction • This will deliver sust
Slide 52: The Best in British Food with Brands You Really Love
The Best in British Food with Brands You Really Love 52
Slide 53: Appendices
Appendices 53
Slide 54: Definitions
Definitions Trading profit is defined as operating profit from continuing operations before exceptional items, amortisation of intangible assets, the revaluation of foreign exchange and other derivative contracts under IAS39 and pension credits or charges in relation to the difference between the ex
Slide 55: Interest Charges
Interest Charges £m 2009 2008 % Net debt interest (78) (137) 43.1 Securitisation interest (2) (6) 66.7 Swap contract interest (62) 25 - Amortisation and deferred fees (13) (8) (62.5) Regular net interest charge (155) (126) (23.0) Unwind of provision discount (1) (1) - IAS 39 – fair valuation of fina
Slide 56: Swap Instruments
Swap Instruments Instrument Type Nominal Value Interest 2009 Maturity MTM £m £m £m Conventional swaps 175 13 2010-2013 6 Cap & collar swaps 350 15 2013 30 Long dated swaps 400 10 2023-2037 71 Digital swaps 275 23 2013 55 Financial instrument held 150 1 2013 37 at fair value through P&L account 1,350
Slide 57: Taxation
Taxation • P&L charge for 2009 of £6.8m on continuing activities, a rate of 14.6%, benefited from £9.0m credits in respect of prior year adjustments • The current year rate is 34.0%. Major items impacting the rate are: – Exceptional charges that have been treated as non-allowable – Utilisation of ta
Slide 58: Earnings Per Share
Earnings Per Share £m 2009 2008 % Trading profit 323 309 4.5 Regular interest (155) (126) (23.0) Adjusted profit before tax 168 183 (8.2) Tax at 28%/28.5% (47) (52) 9.6 Adjusted profit after tax 121 131 (7.6) Adjusted eps 5.8p 14.4p (59.7) Average shares in issue (millions) 2,079 905.3 Pro forma adj
Slide 59: Covenants
Covenants £m 2009 Covenant Net debt 1,378 Covenant EBITDA 376 Covenant Interest 140 Net debt / EBITDA test <4.75 Net debt / EBITDA actual 3.66 Net debt / EBITDA headroom % 23% EBITDA / Interest test >2.00 EBITDA / Interest actual 2.69 EBITDA / Interest headroom % 26% 59
Slide 60: Pension Valuation And Assumptions
Pension Valuation And Assumptions Pension Deficit 31 Dec 2009 31 Dec 2008 (£m) Assets 2,530 2,528 Liabilities (2,959) (2,540) Deficit (429) (12) Assumptions 31 Dec 2009 31 Dec 2008 Discount rate 5.8% 6.3% Inflation (derived) 3.5% 2.8% Future pension increases 2.2% 2.0% Expected salary increases (RHM
Slide 61: Balance Sheet
Balance Sheet £m 2009 2008 Fixed assets Property, plant & equipment 635 639 Intangibles / goodwill 2,480 2,531 Total fixed assets 3,115 3,170 Working capital Stock 214 239 Debtors 347 337 Creditors (485) (540) Total working capital 76 36 Net debt Gross borrowings (1,383) (1,777) Cash 18 10 Total net