Premier Foods plc · LSE:PFD
Premier Foods — H1 2007 Earnings Presentation
59 slides from Premier Foods's earnings presentation, Sep 4, 2007
Slide 1: Premier Foods Interim Results
Premier Foods Interim Results Half-year ended 30 June 2007
Slide 2: Robert Schofield, Chief Executive
Robert Schofield Chief Executive Premier Foods plc 2007 Interim Results - Monday, 4th September 2007 2
Slide 3: Business Highlights
Business Highlights • Core Premier trading on track – H1 2007 sales impacted by reduced own label and promotional activity – Core Premier Trading Profit up 4.4% • Completion of Campbell’s integration – Full 6 months trading from Campbell’s – Cost synergies on track – Sales decline arrested – Innovat
Slide 4: Looking Forward
Looking Forward • H2 2007 has started well – Strong summer trading compared to H2 2006 – Strong NPD programme in H2 2007 – Campbell’s moving into real sales growth in H2 • RHM Trading Profit impacted in H1 by Culinary Brands and Bread Bakeries – But Culinary Brands trading is now fixed and in good g
Slide 5: Paul Thomas, Finance Director
Paul Thomas Finance Director Premier Foods plc 2007 Interim Results - Monday, 4th September 2007 5
Slide 6: Financial Highlights
Financial Highlights Continuing operations (£m) 2007 H1 2006 H1 YoY % Sales 899.1 366.5 145.3% Trading Profit 96.8 45.6 112.3% Operating Profit before exceptional items 92.7 41.1 125.5% Profit after tax 21.9 20.5 6.8% Adjusted EPS 5.3p 5.6p* (5.4%) Adjusted EPS excl. 2006 Cadbury contribution 5.3p 4
Slide 7: Statutory Net Income
Statutory Net Income Summary Profit & Loss (£m) 2007 H1 2006 H1 Operating profit before exceptional items 92.7 41.1 Operating exceptional items (40.5) 1.3 Operating profit 52.2 42.4 Regular interest charges (43.7) (20.3) Fair value of interest rate derivatives 13.8 5.5 Exceptional interest charges (
Slide 8: Exceptional Items
Exceptional Items Summary Profit & Loss (£m) Cash Asset Onerous Total Restructuring Impairment Lease RHM integration 18.7 1.9 3.8 24.4 Campbell’s integration 4.7 3.0 - 7.7 Methwold commissioning 7.3 - - 7.3 Other 1.1 - - 1.1 Total 31.8 4.9 3.8 40.5 • Asset impairment costs are non-cash • Onerous lea
Slide 9: Interest Charges
Interest Charges Summary Profit & Loss (£m) 2007 H1 2006 H1 Net cash interest payable 42.1 19.7 Amortisation of debt issuance costs 1.6 0.6 Regular interest charge 43.7 20.3 IAS 39 – valuation of derivatives (13.8) (5.5) Exceptional amortisation of debt issuance 8.4 - costs Total interest charge 38.
Slide 10: Tax
Tax • P&L credit of £8.0m, made up of following amounts : – £15.4m charge on profit from ordinary activities – effective rate 28.4% – Credit of £11.9m on allowable elements of exceptional costs – One off credits of £11.5m – HMRC settlement/deferred tax rate change • Cash tax receipt of £12.2m in H1
Slide 11: Adjusted Earnings Per Share
Adjusted Earnings Per Share Continuing operations (£m) 2007 H1 2006 H1 Trading profit 96.8 45.6 Regular interest charge (43.7) (20.3) Adjusted PBT 53.1 25.3 Tax at 30% (15.9) (7.6) Adjusted profit after tax 37.2 17.7 Post tax pension credit 5.3 1.1 Adjusted profit incl. post tax pension credit 42.5
Slide 12: Summary Cash Flow / Net Debt / Pensions
Summary Cash Flow / Net Debt / Pensions (£m) 2007 H1 2006 H1 Cash inflow from operating activities 99.4 52.3 Free cash flow 53.6 38.4 Net cash flow (1,098.0) 37.2 (£m) Jun 2007 Dec 2006 Net debt 1,739.4 641.4 Pension deficit 89.1 84.7 Net debt in line with expectations Premier Foods plc 2007 Interim
Slide 13: Rationale for Pro Forma
Rationale for Pro Forma £m 2007 H1 2006 H1 YoY % Sales 1,206.7 1,226.5 (1.6%) Trading Profit 120.3 153.7 (21.7%) • Acquisitions have brought huge complexity to reporting numbers • Traditional like-for-like treatment is of limited value • Adopt pro forma comparative basis for 2007 results Given scale
Slide 14: Premier & Campbell's Pro Forma Sales
Premier & Campbell’s Pro Forma Sales Sales (£m) 2007 H1 2006 H1 Adjust. 2006 YoY % Adjusted Convenience Foods, Pickles, Sauces & 216.5 224.4 - 224.4 (3.5%) Meat-free Spreads, Desserts & Beverages 117.0 137.8 (14.2) 123.6 (5.3%) Campbell’s 120.1 119.8 - 119.8 0.3% Chivers Ireland 10.2 9.5 - 9.5 7.4%
Slide 15: Premier & Campbell's Pro Forma Trading Profit
Premier & Campbell’s Pro Forma Trading Profit Trading Profit (£m) 2007 H1 2006 H1 Adjust. 2006 YoY % Adjusted Convenience Foods, Pickles, Sauces & 16.7 16.2 - 16.2 3.1% Meat-free Spreads, Desserts & Beverages 25.7 29.4 (5.0) 24.4 5.3% Core Premier 42.4 45.6 (5.0) 40.6 4.4% Campbell’s 21.2 26.5 (6.1)
Slide 16: RHM Pro Forma Sales and Trading Profit
RHM Pro Forma Sales and Trading Profit Sales Trading Profit Sales (£m) 2007 H1 2006 H1 YoY % 2007 H1 2006 H1 YoY % Bread Bakeries 398.4 402.8 (1.1%) 19.0 37.9 (49.9%) Culinary Brands 119.5 123.3 (3.1%) 18.5 24.2 (23.6%) Cakes 121.6 112.6 8.0% 7.8 7.6 2.6% Customer Partnerships 103.4 96.3 7.4% 11.5 1
Slide 17: Reporting on Premier / RHM Combination
Reporting on Premier / RHM Combination • We will provide the following reporting on RHM – Post acquisition results March onwards – Pro forma results for FY 2007 • 2007 results will be presented on existing divisions – Convenience, Pickles, Sauces & Meat-free - will provide additional disclosure on C
Slide 18: Robert Schofield, Chief Executive
Robert Schofield Chief Executive Premier Foods plc 2007 Interim Results - Monday, 4th September 2007 18
Slide 19: Agenda
Agenda • Progress Report • Trading Highlights • Rejuvenating Brands • Campbell’s Integration • RHM Integration • Dynamics of the Bread Business • Summary Premier Foods plc 2007 Interim Results - Monday, 4th September 2007 19
Slide 20: Progress Report
Progress Report Profit • We anticipate meeting our trading profit targets we had at the start of the year – Bread divisions prices up – All other divisions on track Sales • Premier/Campbell’s – £10m Campbell’s drag factor – Will still grow 1.5-2.0% • Manor Bakeries – Second half growth despite remov
Slide 21: Progress Report
Progress Report Integration • Campbell’s is integrated – cost synergies are secure • RHM well advanced – Confident of £85m cost synergies – More organic savings identified to be reinvested behind the brands Brand investment • Premier 5.6% of branded sales • RHM 2.6% of branded sales • RHM spend will
Slide 22: Progress Report
Progress Report RHM – Do we like what we bought • Many unexpected positives • No unanticipated negatives • Wheat market instability should not cloud the facts Bread Bakeries status • Managed on separate platform • Confidence built on – Power of the Hovis brand – The potential for innovation – Abilit
Slide 23: Premier H1 Trading
Premier H1 Trading • Premier and Campbell’s combined - managed as a single business • Pro forma sales down £13m / 2.8% – Branded sales - £3m / 1.0% (including £5m Campbell’s drag factor) – Own label sales - £10m / 6.9% (Convenience Foods £5m, Spreads £4m) • Pro forma Trading profit up £2m / 3.3% – L
Slide 24: Convenience, Pickles, Sauces & Meat-free H1 Trading and Outlook
Convenience, Pickles, Sauces & Meat-free H1 Trading and Outlook Convenience Foods, Pickles, 2007 H1 2006 H1 YoY % Sauces & Meat-free (£m) Sales 216.5 224.4 (3.5%) Trading Profit 16.7 16.2 3.1% Branded sales 55.8% 54.5% Convenience, Pickles & Sauces • H1 2007 – Softer own label sales – Lower sales of
Slide 25: Convenience, Pickles, Sauces & Meat-free H1 Trading and Outlook
Convenience, Pickles, Sauces & Meat-free H1 Trading and Outlook Meat-free • H1 2007 – Growth restricted to 2.8% due to Methwold commissioning – 3 month promotional freeze – Penetration figures continue to grow – now up to 20.5% • H2 2007 Outlook – Back on track with double digit top-line growth acro
Slide 26: Spreads, Desserts & Beverages H1 Trading and Outlook
Spreads, Desserts & Beverages H1 Trading and Outlook Spreads, Desserts & Beverages 2007 H1 2006 H1 YoY % (£m) Sales 117.0 123.6* (5.3%) Trading Profit 25.7 24.4* 5.3% Branded sales 64.1% 70.1% * 2006 Sales and Trading Profit have been adjusted for the impact of the end of the Cadbury hot beverages l
Slide 27: Campbell's H1 Trading and Outlook
Campbell’s H1 Trading and Outlook Campbell’s (£m) 2007 H1 2006 H1 YoY % Sales 120.1 119.8 0.3% Trading Profit 21.2 20.4* 3.9% Branded sales 94.4% 96.0% * An estimated £6.1m pre-acquisition trading distortions have been removed from the Campbell’s 2006 trading profit • H1 2007 – Oxo in strong growth
Slide 28: Culinary Brands H1 Trading and Outlook
Culinary Brands H1 Trading and Outlook Culinary Brands (£m) 2007 H1 2006 H1 YoY % Pro forma Sales 119.5 123.3 (3.1%) Pro forma Trading Profit 18.5 24.2 (23.6%) Branded sales 91.0% 90.7% • H1 2007 – Inherited a business in decline – Exacerbated by trade loading and accrual releases in 2006 • H2 2007
Slide 29: Cakes H1 Trading and Outlook
Cakes H1 Trading and Outlook Cakes (£m) 2007 H1 2006 H1 YoY % Pro forma Sales 121.6 112.6 8.0% Pro forma Trading Profit 7.8 7.6 2.6% Branded sales 74.7% 73.4% • H1 2007 – Mr. Kipling achieving strong share in a growth market – Positive penetration gains year on year for Mr. Kipling and Cadbury Cakes
Slide 30: Customer Partnerships H1 Trading and Outlook
Customer Partnerships H1 Trading and Outlook Customer Partnerships* (£m) 2007 H1 2006 H1 YoY % Pro forma Sales 103.4 96.3 7.4% Pro forma Trading Profit 11.5 11.4 0.9% Branded sales 14.4% 16.4% * Pro forma sales and Trading Profit have been restated to reflect reclassification of RHM Frozen Foods to
Slide 31: Bread Bakeries H1 Trading and Outlook
Bread Bakeries H1 Trading and Outlook Bread Bakeries (£m) 2007 H1 2006 H1 YoY % Pro forma Sales 398.4 402.8 (1.1%) Pro forma Trading Profit 19.0 37.9 (49.9%) Branded sales 40.2% 42.7% • H1 2007 – Volumes in H1 2007 impacted by : • Market decline of 4.8% (Source: IRI Total Grocery Outlets, 28 weeks t
Slide 32: Trading Outlook
Trading Outlook • Good summer trading • Quorn back to double digit growth • Strong second half NPD programme • Significant raw material inflation across the business – Price increases in train to offset inflation • Integration continues to proceed to plan • We will grow sales in the second half Stro
Slide 33: General Inflation
General Inflation • Entering a period of extensive general inflation – Ingredients – Packaging (oil based) – Energy • Driven by : – Increase in world demand (China/India) – Growing fuel Environmental tax on food • Not seen since early 1990’s Will require a significantly different management approach
Slide 34: Rejuvenating brands for organic growth
Rejuvenating brands for organic growth Premier Foods plc 2007 Interim Results - Monday, 4th September 2007 34
Slide 35: Branded sales growth 2001-2006
Rejuvenating Brands Branded sales growth 2001-2006 500 25 443 450 15 79 400 350 33 59 Branded sales 300 250 70 200 161 150 100 50 0 2001 Base 2002 Nestle 2003 2005 Birds 2005 2005 Organic 2006 Base business Ambrosia Quorn Cauldron growth Branded organic growth of c2.5%pa Premier Foods plc 2007 Inter
Slide 36: Trading Profit Growth 2001-2006
Rejuvenating Brands Trading Profit Growth 2001-2006 140 9.7 129.9 16.0 120 17.0 100 11.6 2.5 Trading profit £m 9.9 80 9.4 60 15.0 38.8 40 20 0 2001 Base Nestle Ambrosia Birds Quorn Cauldron Campbells Synergies Organic 2006 Growth 2001-2006: 6 businesses successfully integrated with synergies deliver
Slide 37: Rejuvenating Campbell's
Rejuvenating Campbell’s What we said we would do • Rejuvenate the brands – Unlock the potential of Oxo – Modernise Batchelors – Refocus Homepride • Drive channel growth • Reduce the costs – Integrate and deliver annual £28m of cost synergies Premier Foods plc 2007 Interim Results - Monday, 4th Septe
Slide 38: Campbell's Integration
Campbell’s Integration What we have achieved to date • Sales decline of 4% pa arrested within 12 months • We have started rejuvenating the brands – Oxo liquid stock launch in H2 2007 – Batchelors Soupfulls ready-to-eat soup launch in H2 2007 – Homepride decline significantly reduced – Fray Bentos in
Slide 39: Campbell's – A Classic Premier Deal
Campbell’s – A Classic Premier Deal • Met all our acquisition criteria And as with our other acquisitions, we have : • Stabilised and integrated the business • Delivered the synergies • Returned the brands to growth • Focused on innovation, which is now coming through Premier Foods plc 2007 Interim
Slide 40: RHM Business
RHM Business What We Have Found As expected : • Historic performance hindered by divisional structure • Underinvested plant and processes in Bread Bakeries • A poorly performing frozen foods business • Sub-optimal trading strategy in Culinary Brands • Lack of investment behind brands Better than exp
Slide 41: RHM People
RHM People What We Have Found • High quality of RHM management confirmed by external benchmarking – But RHM people tended to work in silos with little sharing of information or best practice – Using Premier’s strengths in operating as one business to leverage knowledge across the organisation • Will
Slide 42: RHM Highlights Five Months On
RHM Highlights Five Months On Progressing on time and on target • Synergies on track to achieve £85m, £10m to be delivered in 2007 – RHM Head Office closed June 2007 – Operating board includes RHM senior management – Culinary Brands commercial teams fully integrated – Manufacturing review completed
Slide 43: RHM Summary
RHM Summary • Synergies on track to achieve £85m • Good people who have taken to the Premier way of working • Culinary Brands fixed and returned to growth • Cakes margin potential • Chilled opportunity for our brands • Potential for Hovis • Opportunity to fix the cost structure in Bread Bakeries Pre
Slide 44: Dynamics of the Bread Business
Dynamics of the Bread Business Premier Foods plc 2007 Interim Results - Monday, 4th September 2007 44
Slide 45: Key Dynamics Affecting The Business
Key Dynamics Affecting The Business • Wheat prices • Competitor activity • Industry cost structure and customer service • The Hovis opportunity Premier Foods plc 2007 Interim Results - Monday, 4th September 2007 45
Slide 46: Wheat Prices
Wheat Prices North West Bread Wheat Prices (spot) Historic and Forward from HGCA bulletin (Forward market prices as at - 29th Aug 2007) £215.00 £91.45 £91.02 £91.18 £108.16 £ 98.84 £ 89.27 £ 122.89 £ 206.42 £205.00 £195.00 £185.00 £175.00 £165.00 £155.00 £145.00 £135.00 £125.00 £115.00 £105.00 £95.0
Slide 47: Competitor Activity - Volume
47 Warburtons Own Label Kingsmill Hovis Kingsmill relaunch although disruptive has not changed market positions Warburton's have gained share but primarily by increased distribution by 4 w/e 11 Aug, 07 4 w/e 16 Jun, 07 Competitor Activity - Volume 4 w/e 21 Apr, 07 4 w/e 24 Feb, 07 4 w/e 30 Dec, 06 4
Slide 48: Industry Distribution Cost Structure / Customer Service
Industry Distribution Cost Structure / Customer Service • All three major players distribute once daily to virtually the same outlets – Huge cost (more than production costs !) – Hugely inefficient – Environmentally unfriendly – Delivers poor customer service • We need to explore a collaborative ind
Slide 49: The Hovis Opportunity
The Hovis Opportunity • Hovis is seen as THE Healthy bread brand – Number 1 position of “half and half” with 76% share* – Number 1 position of “crustless” with 79% share* – Number 1 position of “granary and seeded” with 37% share* – Number 1 position of “brown” with 26% share* • Hovis is THE innovat
Slide 50: Summary
Summary • Integration going well – Integration of Campbell’s completed – Integration of RHM proceeding at pace – synergies on track • We will grow our brands in the second half of the year – Good start to trading for the second half - sales and profit on track – Great NPD coming to market now • Sign
Slide 51: Premier Foods Q&A
Premier Foods Q&A Premier Foods plc 2007 Interim Results - Monday, 4th September 2007 51
Slide 52: Premier Foods Appendices
Premier Foods Appendices Premier Foods plc 2007 Interim Results - Monday, 4th September 2007 52
Slide 53: Interest Rate Hedging
Interest Rate Hedging • £2.1bn 5 year term and revolving credit facility maturing in March 2012, – £1,756m drawn at 30 June 2007 • Interest charged is 3m LIBOR plus applicable margin – Applicable margin linked to Net Debt/EBITDA – currently 110 bps. • Significant derivative programme in place to man
Slide 54: Operating Cash Flow
Operating Cash Flow Cash Flow £m 2007 2006 Operating Profit 52.2 42.4 Depreciation 25.5 8.6 Amortisation 12.5 4.2 Working capital movement 34.2 19.2 Non-cash operating credits/(charges) 6.0 (0.2) Cash generated from continuing operations 130.4 74.2 Discontinued operations (1.6) 1.7 Cash generated fr
Slide 55: Free Cash Flow and Net Debt
Free Cash Flow and Net Debt Cash Flow £m 2007 2006 Cash inflow from operating activities 99.4 52.3 Net capital expenditure (45.8) (13.9) Free cash flow 53.6 38.4 Dividends (39.6) - Acquisitions and disposals (1,102.0) - Non-cash movements (10.0) (1.2) Net Cash Inflow/(Outflow) (1,098.0) 37.2 Opening
Slide 56: Pensions
Pensions • Assumes inflation at 3.2% and discount rate of 5.8% at 30 June 2007 • Net pension deficit of £64.1m at 30 June 2007 – gross deficit £90.7m £m 2007 H1 2006 H1 Premier schemes 43.5 84.7 RHM schemes 47.2 - Gross pension deficit 90.7 84.7 Pension payment schedule 2007 2008 2009 Anticipated co
Slide 57: 2006 Financial Re-Statement
2006 Financial Re-Statement • A Financial re-statement exercise for 2006 has been undertaken, superseding that previously communicated which reflects the following : – Discontinued business of Erin Foods – Discontinued of RHM Frozen Foods business – Acquisition of Chivers Ireland – Acquisition of Ca
Slide 58: 2006 Financial Re-Statement
2006 Financial Re-Statement Premier Foods, Campbells and RHM results restated according to Premier Foods accounting policies for 2006 H1 2006 H2 2006 FY 2006 Trading Trading Trading Trading Trading Trading Sales Profit Profit % Sales Profit Profit % Sales Profit Profit % Convenience Foods, Pickles,
Slide 59: Wheat & Bread Economics
Wheat & Bread Economics • Premier purchases approximately 1.5m tonnes of wheat per annum. • 1.5m tonnes of wheat produce around 1.2m tonnes of flour. • Approximately 55% of flour made is used internally. • 1 tonne of wheat = approximately 1,300 loaves. • A £10 per tonne increase in wheat prices adds