Premier Foods plc · LSE:PFD
Premier Foods — H1 FY20/21 Earnings Presentation
51 slides from Premier Foods's earnings presentation, Nov 10, 2020
Slide 1: Half year results for 26 weeks ended 26 September 2020
Half year results for 26 weeks ended 26 September 2020 10 November 2020
Slide 2: Alex Whitehouse, Chief Executive Officer
Alex Whitehouse Chief Executive Officer
Slide 3: Headline Half Year & Q2 Results
HEADLINE HALF YEAR & Q2 RESULTS Exceptionally strong trading driving operational leverage and accelerated debt reduction +15.0% +18.6% £66m ↓£88m 2.33x +8.1% +11.0% +28.7% H1 & Q2 H1 & Q2 branded Net debt1 H1 Trading profit Net debt/EBITDA Revenue growth Revenue growth reduction Business resilience
Slide 4: Strongly positioned with our branded growth model
STRONGLY POSITIONED WITH OUR BRANDED GROWTH MODEL Market share and household penetration gains, exceptional online growth +260bps share gain H1 +75bps +335bps Desserts Cooking Flavourings Sauces & & QMS Sweet Treats Q2 +95bps Accomps Seasonings PF Market 1 Outgrowing market in 2 3 4 H1 Household Mar
Slide 5: Duncan Leggett, Chief Financial Officer
Duncan Leggett Chief Financial Officer
Slide 6: Half year net debt progression since FY16/17
HALF YEAR NET DEBT PROGRESSION SINCE FY16/17 Demonstrable track record of accelerating debt reduction Net debt /EBITDA 3.84x 4.02x 3.57x 3.24x 2.33x £m 600 556 21 550 535 26 510 39 500 471 88 450 400 383 350 300 Net debt FCF Net debt FCF Net debt FCF Net debt FCF Net debt Sept 2016 Sept 2017 Sept 20
Slide 7: Net debt
NET DEBT Lowest Net debt at half year ever, leverage down to 2.3x £m 450 408 75 400 18 5 3 383 7 27 350 300 250 Net debt EBITDA Pensions Capex Interest Working capital / Restructuring H1 Net debt FY19/20 Other Pre-IFRS 16 ▪ Working capital timing benefit expected to unwind ▪ Capex marginally lower t
Slide 8: FY20/21 H1 Group headline results
FY20/21 H1 GROUP HEADLINE RESULTS Strong Revenue and Trading profit growth £m FY20/21 H1 FY19/20 H1 Change (%) Q2 Change (%) Branded revenue 368 310 +18.6% +11.0% Non-branded revenue 54 57 (4.9%) (6.4%) Total revenue 422 367 +15.0% +8.1% Divisional contribution 88 70 +25.6% Group & corporate costs (
Slide 9: Grocery
GROCERY Significantly elevated branded volumes resulting in strong contribution progress £m FY20/21 H1 FY19/20 H1 Change (%) Q2 Change (%) Branded sales 273 218 +25.2% +13.0% Non-branded sales 44 46 (4.7%) (5.0%) Total sales 317 264 +20.0% +9.9% Divisional contribution 79 59 +32.2% Divisional contri
Slide 10: Sweet Treats
SWEET TREATS Stronger Q2 revenue; DC lower due to increased Covid costs and marketing investment £m FY20/21 H1 FY19/20 H1 Change (%) Q2 Change (%) Branded revenue 94 92 +3.0% +5.5% Non-branded revenue 11 11 (5.8%) (12.2%) Total revenue 105 103 +2.0% +3.2% Divisional contribution 9 10 (12.5%) Divisio
Slide 11: Strong statutory & headline metrics in first half
STRONG STATUTORY & HEADLINE METRICS IN FIRST HALF Operating leverage and lower interest costs delivering growth through the P&L £65m £51m 5.1p £48m 4.5p +£29m +£36m +3.6p +50.2% +49.6% Operating Statutory PBT Basic EPS Adjusted PBT Adjusted EPS profit 11
Slide 12: Adjusted earnings per share growth +50%
ADJUSTED EARNINGS PER SHARE GROWTH +50% £m FY20/21 H1 FY19/20 H1 Change (%) Trading profit 66 51 +28.7% Net regular interest (18) (19) +6.6% Adjusted PBT 47 32 +50.2% Notional tax @ 19% (9) (6) (50.2%) Adjusted earnings 38 26 +50.2% Weighted average shares in issue (million) 849.6 846.1 +0.4% Adjust
Slide 13: Readiness for EU exit on 31 December 2020
READINESS FOR EU EXIT ON 31 DECEMBER 2020 Extensive preparations for a no-deal exit 1 ▪ Group Turnover with EU is £22m ▪ Republic of Ireland is largest market Context ▪ Raw materials and packaging purchased from EU: 25% ▪ Net Euros exposure: c.€50m; forward contracts used ▪ Low proportion of employe
Slide 14: Combined pension schemes – surplus of £517m
COMBINED PENSION SCHEMES – SURPLUS OF £517m Movement reflects reduction in discount rate from 2.5% to 1.55% 26 September 2020 28 March 2020 IAS19 Accounting valuation (£m) Premier Premier RHM Combined RHM Combined Foods Foods Assets 4,638 839 5,477 4,745 775 5,520 Liabilities (3,716) (1,244) (4,960)
Slide 15: Capital structure being transformed
CAPITAL STRUCTURE BEING TRANSFORMED £120m of Floating Rate Notes to be paid back this year and credit ratings upgrades 12 months ago Today1 £m £m 350 RCF Fixed notes Floating notes 350 RCF Fixed notes Floating notes 300 300 300 300 250 250 210 200 177 200 177 150 150 90 100 100 50 50 0 0 2020 2021 J
Slide 16: Alex Whitehouse, Chief Executive Officer
Alex Whitehouse Chief Executive Officer
Slide 17: Our branded growth model strategy is delivering
OUR BRANDED GROWTH MODEL STRATEGY IS DELIVERING A combination of agility, pace and scale £ Sustainable Cost control Cash & profitable & efficiency generation revenue growth • Leading brand positions • Disciplined working capital • Lean SG&A cost base • Insight driven innovation management • Operatio
Slide 18: UK revenue performance
UK REVENUE PERFORMANCE Established track record of delivering sustainable, profitable revenue growth Quarterly UK revenue growth % movement year on year 23.0% 7.8% 7.3% 4.4% 4.4% 4.8% +5.2% 4.0% 3.4% 3.6% 2.6% 1.6% 1.2% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY17/18 FY18/19 FY19/20 FY20/21 18
Slide 19: Growing ahead of the market in all categories
GROWING AHEAD OF THE MARKET IN ALL CATEGORIES Share gains in all categories reflects leading market positions, NPD and investment Category growth & market share gains Share +193bps +266bps +38bps +73bps +154bps +75bps gains 32% 29% 29% 26% 26% 26% 23% 22% 18% Category PF growth growth 13% Market gro
Slide 20: Exceptionally high growth online
EXCEPTIONALLY HIGH GROWTH ONLINE And we have grown at a faster rate (still) Online growth Online growth x category 140% 140% 120% 120% 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% Cake Desserts Flavourings Cooking QMS Total & Sauces & Seasonings Accomps PF Growth Total Market PF growth Market gro
Slide 21: Covid-19 dynamics & resilience
COVID-19 DYNAMICS & RESILIENCE Why our business has proved to be resilient over the last six months 1 2 3 Brand equity Consumers Repertoire expansion Leading category Consumers turn to brands To conquer monotony of positions they can trust the same meals at home 4 5 6 Household penetration Robust su
Slide 22: Our approach to Covid-19
OUR APPROACH TO COVID-19 Health & wellbeing of colleagues is paramount as we help feed the nation 1 Protecting colleagues health and wellbeing - Early implementation of additional, enhanced hygiene protocols - Social distancing measures implemented per Government and WHO guidelines Feb “Track & Trac
Slide 23: First half advertising investment
FIRST HALF ADVERTISING INVESTMENT Our 3 biggest brands were all on air in the first six months of the year Weeks 12 4 2 on air weeks weeks weeks ▪ Upweighted advertising investment in line with branded growth model strategy and partly reflecting beneficial media rates ▪ First Mr Kipling TV media cam
Slide 24: A reminder of our innovation strategy
A REMINDER OF OUR INNOVATION STRATEGY And is core to the delivery of organic growth 1 Consumer trends Insight Consumer at the heart of the innovation process Building in depth 1 consumer Health & Nutrition understanding 2 2 Innovation Convenience 3 Developing new products that make Snacking and On t
Slide 25: Continued focus on new product development
CONTINUED FOCUS ON NEW PRODUCT DEVELOPMENT Strong H1 innovation pipeline H1 innovation NPD as % Branded revenue Healthier choices, indulgence and baking at the forefront Continued growth from NPD Absolute value of NPD sales growing. Core UK branded sales exceptionally strong 6.5% 6.0% 5.8% 5.6% 4.4%
Slide 26: Making progress against our revised international strategy
MAKING PROGRESS AGAINST OUR REVISED INTERNATIONAL STRATEGY H1 revenue growth 14%; equally phased across Q1 & Q2 • Revised International strategy to deliver sustainable profitable revenue growth: - Disappointing performance in FY19/20 - Opportunity evidenced by pockets of success and local ‘in market
Slide 27: Progress in deployment of international strategy
PROGRESS IN DEPLOYMENT OF INTERNATIONAL STRATEGY Replicating the successful sustainable UK branded growth model in Ireland 1 2 3 Ireland Australia North America 1. Head of market in place 1. Head of market • Mr Kipling market 2. Replicating UK branded growth model appointed cake test in Canada A fir
Slide 28: Plans for the second half
PLANS FOR THE SECOND HALF 6 major brands planned to benefit from increased advertising in FY20/21 Further significant increase in advertising investment Six major brands which account for 58% of Group sales 6th brand ? ‘Little Thief’ ‘Tasty Donkey’ ‘Best Gravy’ ‘Dad’s night in’ ‘Devon Knows’ New for
Slide 29: New products for H2
NEW PRODUCTS FOR H2 The branded growth model continues to drive the innovation agenda Cape Herb & Spice Batchelors and Nissin Mr Kipling Cadbury Ambrosia, Bird’s and Angel Delight 29
Slide 30: Healthier for you choices are core to innovation agenda
HEALTHIER FOR YOU CHOICES ARE CORE TO INNOVATION AGENDA By 2025, every core range will include a better-for-you option 1 Enhance ▪ Targeting reduction in salt, sugar and calories nutrition profile ▪ Stealth reduction across categories of existing core ▪ Previously removed 1,102 tonnes of sugar acros
Slide 31: Innovation aligned to health & nutrition trends
INNOVATION ALIGNED TO HEALTH & NUTRITION TRENDS The branded growth model continues to drive the innovation agenda Sharwood’s Batchelors Bisto Mr Kipling Plantastic 31
Slide 32: Our ESG strategy
OUR ESG STRATEGY Five pillars which stretch across our business • Extend our range of healthier foods Encourage • Enhance nutrition profile of existing range healthier • Educate consumers & colleagues on healthier choices choices Realise • Attract talent & developing skills people’s • Diversity and
Slide 33: ESG
ESG Healthier choices Realise people’s potential Drive ethical sourcing 1. Attracting talent and developing Drive high ethical and compliance skills ↓ standards across supply chain: - Support and develop graduates • Since 2015, we have sourced - Provide extensive training 100% certified sustainable
Slide 34: ESG
ESG Supporting our communities Reducing our environmental footprint 1 • Reduced CO2 emissions by 5.1% last year 440,000 meals1 donated to and by 40% since 20082 440,000 those in need via Fareshare Climate during Covid pandemic • Maintain zero waste to landfill record action • Met and exceeded 25% wa
Slide 35: In summary
IN SUMMARY ▪ H1 accelerated volumes due to increase in consumer eating at home occasions ▪ Continuing to drive underlying branded growth model strategy ▪ Growing faster than the market, including in online channel ▪ Household penetration gains being sustained ▪ Very strong Trading profit, adjusted P
Slide 36: Outlook
OUTLOOK ▪ Continued focus on branded growth model with: - Further insightful product innovation and - Increased emotionally engaging advertising investment; 6 brands on TV in H2 ▪ H2 revenue growth: - Underlying branded growth model Outlook - Impact of recent increased restrictions on eating out - T
Slide 37: Q&A
Q&A
Slide 38: Appendix
Appendix 38
Slide 39: Cautionary statement
CAUTIONARY STATEMENT This presentation may contain "forward-looking statements" that are based on estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements are all statements other than statements of historical fact or statements in the present tense, and can b
Slide 40: Definitions
DEFINITIONS ▪ The period ‘FY20/21 H1’ refers to the 26 weeks ended 26 September 2020. The period ‘FY19/20 H1’ refers to the 26 weeks ended 28 September 2019. ▪ The period ‘Q2’ refers to the thirteen weeks ended 26 September 2020 and the comparative period the thirteen weeks ended 28 September 2019.
Slide 41: Strong brand equity
STRONG BRAND EQUITY Strong market shares and high household penetration Categories Brands Position Share Penetration Flavourings & Seasonings 1 44% 73% Quick Meals, Snacks & Soups 1 33% 47% Ambient Desserts 1 36% 59% Cooking Sauces & Accompaniments 1 16% 54% Ambient Cakes 1 24% 65% Sources: Category
Slide 42: UK grocery market
UK GROCERY MARKET Ambient grocery shows lowest prevalence of retailer brand in UK grocery 17% 34% Chilled 45% Ambient Frozen & Fresh 55% 66% 83% Branded Non-branded Branded Non-branded Branded Non-branded Market size £35bn £41bn £7bn Flavourings & Ambient Ambient QMS Cooking Sauces Seasonings Desser
Slide 43: Non-branded plays an important and supportive role in our business
NON-BRANDED PLAYS AN IMPORTANT AND SUPPORTIVE ROLE IN OUR BUSINESS Non-branded revenue by type Key principles & criteria • Application of a Capex light approach Knighton B2B & flour • To play an important & incremental role • Assists in supporting Manufacturing overhead recoveries • Strict financial
Slide 44: Covid-19 physical segregation and signage
COVID-19 PHYSICAL SEGREGATION AND SIGNAGE Examples of measures implemented around our sites Socially distanced hygiene stations Signage to remind/guide colleagues of safety measures Perspex screens on cake manufacturing line to ensure colleague safety Social distancing marshals 44 44
Slide 45: Cost savings programme on track to beat target
COST SAVINGS PROGRAMME ON TRACK TO BEAT TARGET Target of £5m additional cost savings by FY21/22 for brand re-investment Savings by type Savings by year 10% 10% 26% 20% £5m £5m Cost Cost savings savings 70% 64% Supply chain International SG&A Corporate restructuring FY19/20 FY20/21 FY21/22 Supply Cha
Slide 46: Operating profit increased 82%
OPERATING PROFIT INCREASED 82% Trading profit growth and Hovis loan note revaluation £m FY20/21 H1 FY19/20 H1 Change Trading profit 66 51 15 Amortisation of intangible assets (14) (15) 1 Foreign exchange fair value movements (0) 2 (2) Reversal of impairment loss of Loan receivable 16 - 16 Net intere
Slide 47: Interest & taxation
INTEREST & TAXATION £m FY20/21 H1 FY19/20 H1 Senior secured notes interest 14 16 Interest Bank debt interest 3 2 17 18 Amortisation of debt issuance costs 1 1 Net regular interest 18 19 ▪ Tax charge of £7m in FY20/21 H1 ▪ Notional corporation tax 19.0% in FY20/21 Taxation ▪ Low single digit £m cash
Slide 48: Pensions – combined schemes
PENSIONS – COMBINED SCHEMES £m 26 September 2020 28 March 2020 Scheme Assets (£m) 26 September 2020 28 March 2020 Assets 5,477 5,520 Equities 13 12 Liabilities (4,960) (4,290) Government bonds 1,676 1,803 Surplus 517 1,230 Corporate bonds 8 25 Surplus net of deferred 418 997 Property 434 445 tax @ 1
Slide 49: Combined pension schemes
COMBINED PENSION SCHEMES Accounting combined surplus £517m; Triennial value £202m lower Accounting Valuation trend (£m) Actuarial Triennial Valuation (£m) 2,000 RHM Premier Foods Surplus/(Deficit) 2019 2016 2013 1,500 RHM 338 135 (504) 1,000 922 Premier Foods (552) (551) (538) 500 Ireland 0 0 (20) 0
Slide 50: FY20/21 cash guidance
FY20/21 CASH GUIDANCE Now targeting approximately 1.5x Net debt/EBITDA in medium term FY20/21 guidance £m Working capital Slightly negative Depreciation c.£20m Capital expenditure c.£25m Interest – cash £32-£34m Interest – P&L £35-£37m Tax – cash Nil Tax – notional P&L rate 19.0% Pension deficit con
Slide 51: Balance sheet
BALANCE SHEET £m 26 September 2020 28 March 2020 Property, plant & equipment 189 194 Intangibles / Goodwill 976 987 Retirement benefit assets 933 1,512 Non-current Assets 2,098 2,693 Working Capital - Stock 95 68 - Debtors 87 89 - Creditors (281) (250) Total Working Capital (99) (93) Net debt Gross