Premier Foods plc · LSE:PFD
Premier Foods — FY2011 Earnings Presentation
66 slides from Premier Foods's earnings presentation, Mar 19, 2012
Slide 1: 2011 Full Year Results, Re-financing & Growth Strategies
2011 Full Year Results, Re-financing & Growth Strategies 19 March 2012
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: Agenda
Agenda • Introduction • 2011 Full Year Results • Growth Strategies & Re-financing • Outlook • Q&A 3
Slide 4: Our vision is to be 'The Best in British Food'
Our vision is to be ‘The Best in British Food’ Brands Partners Focus Sustainability • Invest and grow • Engage our • Lean structure • Results (financial and eight Power Brands employees and productivity metrics) embrace diversity • Simple processes − Hovis, Mr. Kipling, • Better choice portfolio Amb
Slide 5: Our vision is to be 'The Best in British Food'
Our vision is to be ‘The Best in British Food’ Brands Partners Focus Sustainability • Invest and grow • Engage our • Lean structure • Results (financial and eight Power Brands employees and productivity metrics) embrace diversity • Simple processes − Hovis, Mr. Kipling, • Better choice portfolio Amb
Slide 6: We are delivering on our strategies
We are delivering on our strategies • Stabilising the business • Investing in our future growth • Strengthening our partnerships • Generating momentum and belief 6
Slide 7: We have strong foundations
We have strong foundations • Scale • Brands • People • Infrastructure 7
Slide 8: Leading branded share positions
Leading branded share positions Ambient Ambient Asian Ambient Dry stock Easy cake desserts cooking gravy eating sauces #1 Wrapped Ambient bread wet cooking sauce #2 Source: Total IRI Grocery outlets, 52 w/e 24 December 2011 8
Slide 9: Strong brand awareness & likeability
Strong brand awareness & likeability • 99%1 households buy our products • c.£70.002 household spend per year • 96% of our top 60 SKU’s test parity or superior to competitor products in blind tasting – represents 50% of branded sales Sources: 1. Kantar Worldpanel 30th Oct 2011 2. Millward Brown Nov 2
Slide 10: New leadership team in place
New leadership team in place • FMCG backgrounds • Business turnaround experience • Track record of delivering branded growth • Focus on execution and delivery 10
Slide 11: New leadership team
New leadership team Michael Clarke Chief Executive Officer Brian Carlton Richard Andrew Ian Deste Iwan Williams Bob Spooner Mark Moran Johnson McDonald Group Group General Group Managing Group Chief HR Corporate Counsel Sales Director Supply Chain Financial Director Affairs And Director Grocery & Di
Slide 12: Efficient supply chain
Efficient supply chain • Best in class procurement • Strong British footprint – 82% goods & services from British suppliers/farmers • Step-change in safety – 81% reduction in reportable accidents over last 5 years • Improved asset utilisation – Utilisation rate improved 38% over last 5 years • Techn
Slide 13: So, what happened in 2011?
So, what happened in 2011? • Challenging market conditions • Customer disputes • Reduced marketing spend • Ineffective promotional activity • Lower volumes 13
Slide 14: 2011 exposed underlying issues
2011 exposed underlying issues • Cumulative under-investment in brands • Weak customer relationships • Complex scale and lack of focus • Inability to capture synergies sustainably • History of short-term tactical initiatives • Poor management of market expectations 14
Slide 15: 2011 Results
2011 Results Mark Moran Chief Financial Officer 15
Slide 16: Ongoing Group sales down 3.4%
Ongoing Group sales down 3.4% Sales (£m) 2011 2010 Growth (%) Power Brands 871 924 (5.6) Support brands 419 447 (6.3) Total branded 1,290 1,371 (5.9) Non-branded 521 504 3.3 Total 1,811 1,875 (3.4) 16
Slide 17: Ongoing business trading results
Ongoing business trading results £m 2011 2010 % Branded sales 1,290 1,371 (5.9) Non-branded sales 521 504 3.3 Total sales 1,811 1,875 (3.4) EBITDA 215 285 (24.6) Trading profit 174 246 (29.3) Net Regular Interest (116) (145) 20.2 Adjusted PBT 58 101 (42.6) Tax @ 26.5%/28% (15) (28) 46.4 Adjusted pro
Slide 18: One-off items are profit neutral
One-off items are profit neutral • Pension credits – H2 credit of £27m on ongoing business due to change from RPI to CPI – Relates to Premier Foods scheme, RHM scheme discussion ongoing – Follows £10m pension credit in H1 and £12m credit in 2010 • Aged receivables – Following restructuring activity,
Slide 19: Grocery division Trading profit
Grocery division Trading profit* 300 (49) £m 268 260 14 (64) 24 217 220 4 20 180 140 100 2010 Trading Volume/mix Procurement Pricing net of Manufacturing Marketing Other admin 2011 Trading profit pre Group promotions, cost efficiencies expenses costs profit pre Group costs inflation costs • Volume p
Slide 20: Bread division Trading profit
Bread division Trading profit* £m 80 60 (11) 60 (21) 40 4 32 20 0 2010 Trading profit Volume / mix Pricing net of Marketing & 2011 Trading profit pre Group costs promotions, cost Distribution pre group costs inflation • Volume declines reflect market performance, customer disputes and non-branded co
Slide 21: Group cost adjustments
Group cost adjustments Trading profit (£m) 2011 2010 Grocery Bread Group Grocery Bread Group Ongoing business pre 217 32 249 268 60 328 Group costs Group costs (53) (23) (76) (58) (25) (83) Group cost re-allocation 6 (6) - - - - Ongoing business 170 3 173 210 35 245 • Total Group costs reduced by £7
Slide 22: Net loss due to impairment charge
Net loss due to impairment charge £m 2011 2010 Ongoing business sales 1,811 1,875 Ongoing business Trading profit 174 246 Add: Canned grocery 5 28 Add: Irish Brands 9 10 Continuing Trading profit 188 284 Amortisation of intangible assets (72) (66) Fair value movements on forex derivatives (2) (2) Pe
Slide 23: Recurring Cash Flow
Recurring Cash Flow £m 2011 2010 Ongoing business Trading profit 174 246 Depreciation 42 39 Other non-cash items (25) 16 Interest (108) (118) Taxation (3) (2) Pension contributions (75) (64) Regular capital expenditure (62) (59) Working capital 0 11 Recurring cash flow from ongoing (57) 69 business
Slide 24: Cash Flow
Cash Flow £m 2011 2010 Recurring cash flow from ongoing business (57) 69 Trading profit – disposed businesses (11) 65 Other cash flows – disposed businesses (40) (18) Recurring cash flow from total Group (108) 116 Net disposal proceeds 400 9 Financing fees & finance leases (7) (40) Movement in net d
Slide 25: 2012 – stabilising performance against a tough backdrop
2012 – stabilising performance against a tough backdrop • Cost inflation lower than 2011 but less aggressive pricing • Competition intense – continuing high level of promotional activity (own label & branded) • Impact of customer disputes not yet fully recovered • Doubling of marketing investment to
Slide 26: Growth strategies
Growth strategies 26
Slide 27: Priorities set to stabilise the business
Priorities set to stabilise the business • Focus investment behind Eight Power Brands – Seven Power Brands back on TV in H1 • Strengthen capabilities – New leadership in place, focus on execution & delivery • Divest selected businesses to sharpen focus – Brookes Avana and Irish Brands disposals comp
Slide 28: Re-financing context
Re-financing context • Business requires space to repair & restructure (business is not broken) • Management taken lead in constructing self-help solutions • Robust business plan, independently stress-tested and supported by all parties • Collaboration from all stakeholders in the collective interes
Slide 29: Re-financing package
Re-financing package • Package subject to formalities of final documents being signed, expected by end March • Bank facilities extended to June 2016 – Total facilities of £1,432m – Term loan £733m, RCF £500m, additional term loan c.£199m – Covenants re-set – Existing margin of 2.25% to Dec 2013, 3.2
Slide 30: Fees and covenants
Fees and covenants Fees Consent fee 1% on outstanding facilities Existing deferred fee 0.5% on current facilities, paid Dec 2013 New deferred fee 2.0% on facilities 28 Mar 2013 - 27 Mar 2014 2.5% on facilities 28 Mar 2014 - 27 Mar 2015 3.0% on facilities 28 Mar 2015 - 27 Mar 2016 Covenant tests Net
Slide 31: Further terms
Further terms • Pension deficit contributions deferred until 1 January 2014, no increase in deficit contributions before 2016 • Cash sweep in February 2014 shared between banks, swap counterparties and pension schemes • Disposal proceeds to be shared between banks and swap counterparties • Requireme
Slide 32: Net regular interest guidance 2012
Net regular interest guidance 2012 2011 = £116m 2012 = £70-£75m 2011 Interest Term A + RCF Additional term loan Swaps close out New swap in Securitisation Additional Fees 2012 Interest • Conversion of previous swap portfolio to Term debt significantly reduces net regular interest in 2012 • Total amo
Slide 33: Priorities reflected in growth strategies
Priorities reflected in growth strategies ‘The Best in British Food’ Brands Partners Focus Sustainability • Invest and grow • Engage our • Lean structure • Results (financial and eight Power Brands employees and productivity metrics) embrace diversity • Simple processes − Hovis, Mr. Kipling, • Bette
Slide 34: Power Brands are at the heart of our strategies
Power Brands are at the heart of our strategies ‘The Best in British Food’ Brands Partners Focus Sustainability • Invest and grow eight Power Brands − Hovis, Mr. Kipling, Ambrosia − Sharwood's, Loyd Grossman − Oxo, Bisto, Batchelors • Entrepreneurial growth of support bands • Dispose of selected bus
Slide 35: Power Brands have the highest potential for growth
Power Brands have the highest potential for growth • Account for 68% branded revenue • Operate in scale/large categories • #1 or #2 in category • Potential to extend to umbrella brands and broader categories 35
Slide 36: Connecting with consumers
Connecting with consumers 1. Leverage ‘Britishness’ – Brands & insights – Procurement – Supply chain 2. Expand into umbrella brands and broader categories 3. Align with consumer trends – Value – Convenience – Better-for-you choices – Meal solutions 4. Build connections through consistent advertising
Slide 37: 1. Leverage 'Britishness'
1. Leverage ‘Britishness’ 37
Slide 38: 2. Expand into umbrella brands
2. Expand into umbrella brands 38
Slide 39: 3. Align with consumer trends
3. Align with consumer trends ‘Batchelors Fuelling Britain’ 39
Slide 40: 4. Build connections (value, convenience)
4. Build connections (value, convenience) 40
Slide 41: 4. Build connections (value, convenience)
4. Build connections (value, convenience) 41
Slide 42: Increased marketing investment
Increased marketing investment 90 80 70 60 50 £m 40 30 20 10 0 2009 2010 2011 2012 2013 2014 Marketing Spend 42
Slide 43: Focused approach to restore Hovis growth
Focused approach to restore Hovis growth • Leverage 100% British wheat/no artificials • Improve supply chain efficiency (milling, bakeries, logistics) • Support innovation e.g. Farmers Loaf • Extend brand to new categories • Build on ‘healthy’ brand equity 43
Slide 44: Support brands & customer brands have a role to play
Support brands & customer brands have a role to play • Provide total category solutions • Support Power Brands • Profitable leverage of category leadership positions • Asset utilisation • Build partnerships with customers 44
Slide 45: Collaborative partner relationships are key
Collaborative partner relationships are key ‘The Best in British Food’ Brands Partners Focus Sustainability • Engage our employees and embrace diversity • Connect with consumers • Win with customers • Collaborate with all stakeholders 45
Slide 46: Broad customer base requires differentiated strategy
Broad customer base requires differentiated strategy Multiple Retail Wholesale & Impulse International Multiple Retail cash & carry Retail North America Europe Middle East SE Asia 46
Slide 47: Improving customer collaboration
Improving customer collaboration From To • Activity-led transactional • Collaborative partners relationships • A clear, compelling and • Absence of ambition for the quantified ambition for each categories we participate in, category and brand, leveraging and the brands we represent portfolio breadth
Slide 48: Cost reductions will fuel growth
Cost reductions will fuel growth ‘The Best in British Food’ Brands Partners Focus Sustainability • Lean structure • Simple processes • Quality, health & safety • Drive efficiency and effectiveness − Productivity − Service 48
Slide 49: Selected disposals will add focus
Selected disposals will add focus • Power Brands – 68% branded revenue, highest growth potential • Support Brands – supporting infrastructure, provide total Power category solutions, leverage Brands market position, utilise assets • Other brands/businesses - standalone infrastructure, non- Support c
Slide 50: Accelerating overhead savings
Accelerating overhead savings • Reduce complexity • Adjust cost base to smaller business • >£40m cost reductions by 2013 • One-off costs c.£21m in 2012 50
Slide 51: Supply chain will deliver further cost reductions & productivity
Supply chain will deliver further cost reductions & productivity • Increased automation • Consolidation of grocery logistics • Improving waste yields • More efficient bread supply chain • Best in class procurement Manufacturing controllable cost reduction of gross 4% Year on Year is sustainable 51
Slide 52: Capital spend focused on growth & productivity
Capital spend focused on growth & productivity Infrastructure Infrastructure Infrastructure Growth & Growth & productivity Growth & productivity productivity 2009 2011 2012 52
Slide 53: Sustainability in everything we do
Sustainability in everything we do ‘The Best in British Food’ Brands Partners Focus Sustainability • Results (financial and productivity metrics) • Better choice portfolio and innovation • Environmental programmes − Energy, Water, Waste • Focused scale 53
Slide 54: Driving sustainability
Driving sustainability • Invest in brands, people and partnerships • Expand better-for-you choices • Continued high environmental/ethical performance • Deliver sustainable financial results 54
Slide 55: 2012 outlook
2012 outlook • Challenging consumer environment • Continue stabilisation of operational performance • Enhance focus through selected disposals • Create platform for future growth beyond 2012 – Double consumer marketing investment (H1 weighted) – Accelerate and deliver major cost reduction programme
Slide 56: Medium-term outlook
Medium-term outlook • Return to sales growth • Gross margin % development • Sustained increase in marketing spend • Continued efficiency and cost reduction • Reduced debt and interest costs • Credible equity story 56
Slide 57: Q&A
Q&A 57
Slide 58: Appendices
Appendices 58
Slide 59: Definitions
Definitions • Trading profit is defined as operating profit before exceptional items, refinancing costs, restructuring costs and losses associated with divestment activity, amortisation and impairment of intangible assets, the revaluation of foreign exchange and other derivative contracts under IAS
Slide 60: Results basis definitions
Results basis definitions • Statutory basis – Meat-free and Brookes Avana are treated as discontinued – Canned grocery operations are treated as continuing and identified as ‘Disposed of Canning operations’ – Irish Brands business is included in the results of the Grocery division • Ongoing Business
Slide 61: Ongoing business performance
Ongoing business performance Sales (£m) 2011 2010 Growth (%) Grocery 1,099.7 1,187.1 (7.4) Bread 711.3 687.6 3.4 Total Ongoing business 1,811.0 1,874.7 (3.4) Brookes Avana 195.4 203.6 (4.0) Irish Brands 21.8 25.5 (14.9) Total including Brookes 2,028.2 2,103.8 (3.6) Avana & Irish Brands Trading profi
Slide 62: Other key financing terms
Other key financing terms • Cash sweep mechanism: – Paid in February 2014 and shared between bank, swap counterparties and pension schemes – Annual cash sweep thereafter, excluding pension schemes • Amortisation payments: – 30 June 2014 - £25m – 31 December 2014 - £25m – 30 June 2015 - £30m – 31 Dec
Slide 63: Interest charges
Interest charges £m 2011 2010 % Bank debt interest (40) (58) 31.0 Securitisation interest (3) (2) (50.0) Swap contract interest (60) (71) 15.5% Cash interest (103) (131) 21.4 Amortisation and deferred fees (13) (14) 7.1 Regular net interest charge (116) (145) (20.0) Unwind of provision discount (2)
Slide 64: Taxation
Taxation • Taxation credit of £29.1m, equivalent to 11.2% on a Continuing operations loss of £259.1m • Cash tax rates are minimal as a result of: – Current year losses – Capital allowances greater than depreciation charges – Partly offset by amortisation of intangible assets not eligible for tax rel
Slide 65: Pension valuation and assumptions
Pension valuation and assumptions Key IAS 19 assumptions 31 Dec 2011 31 Dec 2010 Discount rate 4.80% 5.45% Inflation rate 3.15% 3.45% (CPI 1.95%) Expected salary increases (RHM/Premier) 4.15%/4.15% 3.30%/4.45% Mortality assumptions LTI 1.0% LTI 0.75% Expected return on assets (RHM/Premier) 5.8%/6.6%
Slide 66: Balance Sheet
Balance Sheet £m 2011 2010 Fixed Assets – Property, plant & equipment 399 485 Fixed Assets – Intangibles / Goodwill 1,697 2,113 Total Fixed Assets 2,096 2,598 Assets held for sale 34 407 Working Capital Stock 137 135 Debtors 297 356 Creditors (435) (496) Total Working Capital (1) (5) Net debt Gross