16 November 2021

Premier Foods plc (the "Group" or the "Company")

First half revenue ahead of guidance, firmly on track to deliver full year expectations

Non-GAAP measures above are reconciled to statutory measures throughout

Compared to 2 years ago

·        Q2 Group revenue up +8.5%, Q2 branded revenue ahead +13.3%

·        H1 Branded revenue up +11.4% reflecting strength of Group's branded growth model

·        Trading profit +13.1% ahead

·        Adjusted profit before tax £46.4m, up +46.3% due to trading performance and significant interest cost savings

·        Statutory profit before tax £30.7m, up +104.7%

·        Net debt substantially lower than FY19/20 H1 at £345.0m

Compared to 1 year ago

·        Q2 Group revenue up +0.4%, Q2 branded revenue ahead +2.1%

·        H1 Branded revenue (6.1%) lower than prior year due to lapping effect of exceptional pandemic related volumes

·        Statutory profit before tax down (39.2%); Hovis disposal gain in prior year

·        Net debt £58.1m lower than FY20/21 H1

·        Combined pensions surplus of £607.7m, £67.8m higher than six months earlier

• Very good strategic progress in the first half of the year, revenue ahead of expectations and strong profit growth versus two years ago
• Volume and value market share gains on a two-year basis
• Branded growth model continuing to deliver sales growth through sustained consumer marketing investment and benefits from NPD program
• Successfully navigating macro and industry wide supply chain challenges and inflationary environment
• Category expansion through Cape Herb & Spice, Oxo rubs and marinades with more to come in H2
• International revenue growth up +7% vs two years ago; test launch of Mr Kipling confirmed in US for H2
• Completed earnings enhancing refinancing in H1, with interest costs set to nearly halve compared to FY19/20
• New ESG strategy, the ‘Enriching Life Plan’, announced with a series of major sustainability commitments
• Firmly on track to deliver full year profit expectations

"We have delivered a very good first half performance, with revenue growth ahead of expectations; quarter two was particularly strong, with revenue growth of +8.5% vs two years ago. Our brands have performed especially well with growth versus two years ago of +11.4% and increased market share in both Grocery and Sweet Treats, illustrating the continued success of our branded growth model. I am particularly pleased with how well the business is successfully navigating the widely reported industry wide challenges including logistics, labour shortages and input cost inflation to deliver such a strong set of results, which again underlines the robustness of our operating capabilities.

"Adjusted profit before tax increased by +46% vs two years ago benefiting from both the trading performance and significantly reduced interest costs following the completion of our earnings enhancing refinancing earlier in the year. Net debt is more than £50m lower than this time last year.

"As we look ahead to the second half of the year, we will be launching a range of insight driven new products and supporting six of our key brands with advertising. We will expand our presence in adjacent new categories, building on the initial success of Cape Herb and Spice and Oxo Rubs & Marinades, as well as bringing to market premium Mr Kipling biscuits and a range of branded Ice cream. We will also continue to develop our overseas businesses including the full roll-out of Mr Kipling in Canada and the test launch of Mr Kipling in the USA.

"We enter the second half of the year with strong momentum, and with a series of exciting plans in place for our brands, we remain firmly on track to deliver on our profit expectations for the full year."

On 29 October 2021, the Group announced its new 'Enriching Life Plan' ESG strategy building on the strong progress the business has made to date. The Group recognises its responsibility and the opportunity, as a leading UK food manufacturer, to forge a healthier future for people and the planet, this new strategy will build a more resilient business for the long-term, ensuring it can thrive in a changing world. During the process of developing this strengthened ESG strategy, the Group also conducted a materiality review, engaging with a range of stakeholders.

This new ESG strategy is articulated through the three key strategic pillars of Product, Planet and People. The Group has set out a series of major sustainability targets under each pillar which can be found on the Company's website.

The Group enters the second half of the year with strong momentum. It has a series of exciting brand plans, and with expansion into more new categories, it is well placed to deliver further strategic progress. It continues to successfully manage and navigate through industry wide challenges across the supply chain and has robust plans in place to respond to them. The Group will benefit from substantially lower interest costs from its earnings enhancing refinancing and is on track to deliver against its profit expectations for the full year.

The Group's medium-term target of approximately 1.5x Net debt/EBITDA remains unchanged and it reiterates its intention to pay a dividend on a full year basis.

A presentation to investors and analysts will be webcast today at 9:00am GMT.

To register for the webcast follow the link: www.premierfoods.co.uk/investors/investor-centre

A recording of the webcast will be available on the Company's website later in the day.

A conference call for bond investors and analysts will take place today, 16 November 2021, at 1:30pm GMT. Dial in details are outlined below:

Telephone:                     0800 376 7922 (UK toll free)

                                          +44 20 7192 8000 (standard international access)

Conference ID:             1999172

A factsheet with highlights of the Half year results is available at:

www.premierfoods.co.uk/investors/results-centre 

A Premier Foods image gallery is available using the following link:

www.premierfoods.co.uk/media/image-gallery/

As one of Britain's largest food producers, we're passionate about food and believe each and every day we have the opportunity to enrich life for everyone. Premier Foods employs over 4,000 people operating from 16 sites across the country, supplying a range of retail, wholesale, foodservice and other customers with our iconic brands which feature in millions of homes every day. 

Through some of the nation's best-loved brands, including Ambrosia, Batchelors, Bisto, Loyd Grossman, Mr. Kipling, Oxo and Sharwood's, we're creating great tasting products that contribute to healthy and balanced diets, while committing to nurturing our people and our local communities, and going further in the pursuit of a healthier planet, in line with our Purpose of 'Enriching Life Through Food'. 

Contacts:

Institutional investors and analysts:

Duncan Leggett, Chief Financial Officer                                                                      +44 (0) 1727 815 850

Richard Godden, Director of Investor Relations                                                        +44 (0) 1727 815 850

Media enquiries:

Hannah Collyer, Corporate Affairs & ESG Director                                                    +44 (0) 1727 815 850

Headland                                                                                                                          

Ed Young                                                                                                                            +44 (0) 7884 666830

Jack Gault                                                                                                                          +44 (0) 7799 089357

- Ends -

This announcement 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 be identified by words such as "targets", "aims", "aspires", "assumes", "believes", "estimates", "anticipates", "expects", "intends", "hopes", "may", "would", "should", "could", "will", "plans", "predicts" and "potential", as well as the negatives of these terms and other words of similar meaning. Any forward-looking statements in this announcement are made based upon Premier Foods' estimates, expectations and beliefs concerning future events affecting the Group and subject to a number of known and unknown risks and uncertainties. Such forward-looking statements are based on numerous assumptions regarding the Premier Foods Group's present and future business strategies and the environment in which it will operate, which may prove not to be accurate. Premier Foods cautions that these forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in these forward-looking statements. Undue reliance should, therefore, not be placed on such forward-looking statements. Any forward-looking statements contained in this announcement apply only as at the date of this announcement and are not intended to give any assurance as to future results. Premier Foods will update this announcement as required by applicable law, including the Prospectus Rules, the Listing Rules, the Disclosure and Transparency Rules, London Stock Exchange and any other applicable law or regulations, but otherwise expressly disclaims any obligation or undertaking to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
 

Due to the unique nature of the prior period when the Group saw exceptional patterns of demand for its products during the peak of the Covid pandemic, it has managed and reviewed the performance of its business this year with reference to two years ago and the prior year. The commentary below for Revenue and Trading profit is therefore provided with reference to both two years ago and the prior year.

Revenue

Commentary versus two years ago

Group revenue compared to the same period two years ago increased by 7.5%. Branded revenue was particularly strong over this time frame, up 11.4%, while Non-branded revenue declined (14.0%). In the second quarter, Group revenues increased by 8.5% to £208.2m, with branded revenue up 13.3% and Non-branded revenue (16.3%) lower. This second quarter's reported revenue was ahead of the Group's expectations and reflects a strong performance from several of its major brands.

The Group employs a branded growth model strategy which leverages the strength of its market leading brands, launching insightful new products, supporting them with emotionally engaging advertising and building strategic retail partnerships. In following this strategy, revenues in the UK have grown in sixteen of the last seventeen quarters. On a two-year compound annual growth rate basis, UK branded revenues in the first half of the year have grown by 5.8%, which serves to illustrate the success of this strategy and model.

In the first half of the year, the benefits of the branded growth model have enabled the Group to gain both volume and value market share¹² compared to the same period two years ago, outperforming its categories in both Grocery and Sweet Treats. Household penetration, a measure of how many consumers buy a brand on at least one occasion in a given time frame, has seen a number of the Group's brands retain higher penetration levels compared to pre pandemic levels. The conclusion, therefore, is that some consumers have tried the Group's brands and products during the pandemic and enjoyed them so have continued to purchase them. In e-commerce, the majority of consumers who turned to shopping online for grocery products during the pandemic have continued to use this channel. The Group's sales through online have grown by a very significant 80% compared to two years ago and additionally, market share has increased by 120 basis points.

Grocery

Revenue in the Grocery business increased by 7.6% in the first half of the year compared to two years ago. The driver behind this growth was the branded portfolio which saw revenue increase by 12.2%. In the second quarter, total Grocery revenue grew by 7.2% and the branded portfolio saw revenue increase by 12.5%.

In the first half of the year, the Grocery business has seen many of its brands grow revenue in double-digit terms compared to the same period two years ago. Brands such as Bisto, Oxo, Sharwood's are examples of this strong revenue performance and all these have benefitted from sustained levels of consumer marketing investment and new product development programmes. Additionally, Angel Delight and Paxo have also grown exceptionally well over this time frame, supported by product innovation such as Angel Delight Dessert Kits and Paxo Veggie Fillers.

One of the major successes in recent years across the Group's branded portfolio has been the Nissin noodle product ranges. The Nissin brand has grown consistently strongly over the last four years; in the first half of the year, revenues were over 140% higher compared to the same period two years ago. It is now market leader in the authentic snack pot market, having grown market share from 11% in 2017 to 45% today. These outstanding results have been achieved through leveraging the authentic flavour profiles of the product ranges and also applying deep commercial relationships the Group enjoys, increasing distribution and helping drive trial with consumers to build the brand's performance.

The Group continues to bring more healthy product ranges to market such as Loyd Grossman 30% less sugar Lasagne sauces, no added sugar Homepride pasta bakes and Saxa Sea Salt spray, which uses just 1% of the daily recommended intake of salt per spray. In the second half of the year, the Group will be launching a series of exciting new better for you products such as Batchelors low fat meat free rice and noodle pots, with flavours Facon and Cheese, Chick'n Curry and Rice and Sweet Chilli Chick'n noodles. In the Desserts category, Angel Delight will also be launching ready to eat, on the go, low calorie dessert pots while Bird's is introducing convenient, individual custard pots.

One of the Group's key strategies is to expand into adjacent categories, leveraging the Group's proven branded growth model. For example, the first half of this year has seen the launch of Oxo Rubs and marinades, which represents Oxo's first major move beyond its heartland of Stock and provides the brand greater access to more summer eating occasions such as barbecues. Additionally, H1 has driven increased distribution of Cape Herb & Spice, the product range of rubs, chilli and seasonings, through utilising the Group's deep commercial relationships. Looking ahead to H2, the next stage of this strategy sees the extension of the Mr Kipling, Ambrosia and Angel Delight brands into the Ice-cream category with a variety of flavour variants aligned to the respective brands.

Sweet Treats

The Sweet Treats business delivered revenue growth of 7.1% in the period when compared to two years ago. This was driven by very strong branded growth which increased by 9.5% to £100.1m, partly offset by Non-branded revenue which was (12.2%) lower.

The branded performance was due to an excellent response from the Sweet Treats innovation program. The new better for you Mr Kipling 30% less sugar Viennese Whirls supported revenue growth in the first half and ranges such as the premium Mr Kipling Signature products and Cadbury Fudge and Crunchie cake bars also contributed strongly to the performance. Additionally, Mr Kipling benefitted from TV advertising in the period and further investment is planned for the Group's largest brand in the second half of the year.

Looking ahead to the second half of the year, innovation to be launched to market includes Cadbury Oreo cake bars, which will look to build on the recent success of the Fudge and Crunchie variants. Additionally, and building on the Group's strategy of expanding into new, adjacent categories, Mr Kipling is entering the biscuit category for the first time. A range of new biscuits targeting the everyday treat occasion, came to market at the beginning of the third quarter, leveraging the strength of the Mr Kipling brand.

International

In the International business, revenue on a constant currency basis was 7%⁸ higher than the same period two years ago. This largely reflected growth in the Ireland business, as the performance benefitted from applying the branded growth model, including new product development and television advertising in addition to entering new categories such as Quick Meals Snack & Soups and Homebaking.

The Group continues to make strategic progress in building a sustainable international business with the clear objective of applying the successful branded growth model strategy used in the UK to the priority markets of Ireland, North America, Australia and Europe. In Canada, a full rollout of Mr Kipling snack pack cake slices is planned for the second half of the year following a successful trial and after refinement of the product proposition. In the USA, plans are to take the same approach to cake as has been undertaken in Canada. The Group now has the first confirmed listing of Mr Kipling cake; this will be in the form of a test launch initially to validate the model and the first shipment of products expected to take place in the fourth quarter of the year. Also in the USA, Sharwood's continues to gain distribution points in a key retailer reflecting both increased store presence and new product listings.

Europe is increasingly becoming a clear opportunity for the Group and recent good progress by Sharwood's has been displayed in both Spain and Germany. In Spain, revenue of Sharwood's cooking sauces has increased by over 150% compared to two years ago, reflecting strong growth in Indian sauces such as Tikka Masala while sales in Germany have grown due to the popularity of Sharwood's Rice pots.

Non-branded

Non-branded revenue was (14.0%) lower than the same period two years ago. In Grocery, retailer non-branded revenue was slightly ahead, and while volumes in out of home orientated business units remain below pre-pandemic levels some of these are on an improving trajectory. Sweet Treats Non-branded revenue was impacted by lower margin contract exits.

Commentary versus prior year

Group revenue for the 26 weeks to 2 October 2021 was £394.1m, a decrease of (6.5%) on the same period a year ago. Branded revenue was (6.1%) lower at £345.0m while Non-branded revenue declined (9.4%) to £49.1m. In the second quarter, Group revenues grew by 0.4% to £208.2m, with branded revenue up 2.1% and Non-branded revenue (10.5%) lower.

Grocery

As expected, Grocery revenue was lower in the first half of the year compared to the prior period. Branded and Non-branded revenue declined by (10.3%) and (10.1%) respectively. The overarching driver of these declines reflect the exceptional volumes experienced in the prior year due to the elevated consumer demand observed in the Group's grocery categories during the peak of the Covid pandemic.

Within the first half of the year, branded revenue in the first quarter was (19.6%) lower as it lapped particular strong prior comparatives as described above. In the second quarter, branded revenue was down just (0.4%) on the prior period when revenue had grown by 13.0% against FY19/20 Q2. This was partly due to the relaxation of lockdown restrictions in quarter two last year, although there was evidence that consumers retained some cooking habits which benefitted the Group's categories.

Sweet Treats

In Sweet Treats, revenue grew by 5.0% in the first half of the year to £110.0m. The Branded part of the business enjoyed a strong first half of the year, as revenue grew by 6.3% to £100.1m, while Non-branded revenue was (6.4%) lower at £9.9m. In FY20/21 H1, the cake category did not experience the same level of elevated volumes compared to that seen in the Group's grocery categories, as consumers focused on purchasing key household staple products as the UK entered lockdown restrictions.

In the first half of the year, the cake category grew by 2.0% compared to the prior period, as the Group's brands, Mr Kipling and Cadbury cake, both saw strong growth in the first half of the year, taking market share, as outlined above.

International

The International business saw revenue decline by (5%)⁸ on a constant currency basis. In a similar vein to the Grocery business in the UK, revenue compared to the prior period was impacted by the effects of the global pandemic. In particular, both the grocery product ranges in Ireland and Australia saw lower sales in the first half of the year. Furthermore, constraints associated with global shipping have led to delays in products reaching end markets such as Australia and North America, from the UK.

Non-branded

Grocery Non-branded sales were (10.1%) lower in the first half of the year due to lower sales at Knighton Foods while there were also some low margin contract exits in Desserts and Cooking Sauces & accompaniments which impacted the performance in the period. In Sweet Treats, revenue declined by (6.4%) which was due to the impact of contract exits in fruit pies and slices ranges, which largely impacted the first quarter. In the second quarter, Sweet Treats Non-branded sales returned to growth.

The Group's Non-branded business is one which plays an important and supportive role. The principles used are: to deploy low levels of capital investment; protect branded intellectual property; support the recovery of manufacturing overheads and apply strict financial hurdles on new contracts.

Trading profit

Commentary versus two years ago

The Group delivered very strong Divisional contribution and Trading profit results compared to two years ago. Trading profit increased by 13.1% to £57.8m as Grocery and Sweet Treats Divisional contribution grew by 8.3% and 22.5% respectively.

These performances reflect clear benefits from the Group's proven branded growth model, through its innovation strategy, consistent brand investment and collaborative customer partnerships. Gross margins and Trading profit margins increased by 40 and 70 basis points respectively compared to two years ago while consumer marketing investment was higher.

One of the Group's strategies is to increase its investment in its supply chain infrastructure. The elements of this strategy include capital investment to (i) increase efficiencies across the manufacturing and logistics operations and (ii) to facilitate growth through the Group's innovation strategy. Through these strategies, the Group expects to deliver improvements in gross margin, which then provides funds for additional brand investment, in line with the branded growth model and so drive further branded revenue growth as part of a virtuous cycle. An example of such investment includes a new pots line at the Ashford site, which will deliver innovation growth for the Batchelors and Sharwood's brands.

Commentary versus prior year

The Group delivered Trading profit of £57.8m in the first half of FY20/21, (12.2%) lower than the same period a year ago. Divisional contribution was (12.1%) lower at £77.0m while Group & corporate costs decreased by 11.7% to £19.2m. The Grocery business reported Divisional contribution of £64.3m which was (18.1%) lower than the prior period while Sweet Treats delivered Divisional contribution growth of 39.9% to £12.7m.

Last year, the Grocery business saw some exceptionally strong performances across its branded portfolio, as the substantial increase in volumes seen during the peaks of the Covid pandemic saw benefits to operational leverage, which in turn fed through to Divisional contribution. With Grocery volumes lower than the prior period, this resulted in reduced levels of operational leverage and hence lower Divisional contribution in the first half of this year.

In Sweet Treats, Divisional contribution grew by £3.6m compared to the prior period reflecting strong revenue growth from Mr Kipling and Cadbury cake which have flowed through to Divisional contribution. Unlike the Group's grocery categories, the cake market was less impacted by exceptional consumer buying trends during the pandemic in 2020. There were also lower Covid related costs in the Sweet Treats business in the first half of the year compared to the prior period.

The Group continued to invest in its brands in the first half of the year with Batchelors, Sharwood's and Mr Kipling all benefitting from TV advertising in the period. In the second half of the year, the Group plans to advertise six of its largest brands on TV. This will be the second consecutive year that the Group will be investing behind Ambrosia, Batchelors, Bisto, Mr Kipling, Oxo and Sharwood's through TV advertising, which serves to demonstrate consistent application of its branded growth model.

Group & corporate costs benefitted from lower management and colleague bonuses in the period and the release of a provision no longer required.

The Group notes there are a range of challenges facing global supply chains across a number of industries such as a shortage of heavy goods vehicle (HGV) drivers, general labour shortages and an increasingly inflationary environment. The Group is actively and successfully navigating through this environment and has a series of robust plans in place for the second half of the year. With further inflation now evident across a variety of input costs, the Group will be taking a range of actions which it expects will be effective later this financial year.

Operating profit

Operating profit in the period was £51.3m, a decrease of £13.9m compared to the prior period. This was due to two factors; the exceptional Trading profit performance in the prior period as described above and the reversal of the impairment loss on the Hovis loan note principal, also in the prior period.

Amortisation of intangible assets was £14.3m in the first half of the year; this compared to £13.5m in FY20/21 H1. Fair valuation of foreign exchange and derivatives resulted in a positive movement of £3.3m compared to the comparative period. An impairment reversal of £15.7m was recognised in the prior period in respect of the Hovis loan note previously written off; this reflected a reassessment of the loan note's recoverability. Hovis Holdings Limited was disposed by the Company and The Gores Group to Endless LLP on 5 November 2020.

Net interest on pensions and administrative expenses was a credit of £2.2m in the period. Expenses for operating the Group's pension schemes were £3.2m in the period, offset by a net interest credit of £5.4m due to an opening surplus of the Group's combined pension schemes. There were no restructuring costs incurred in the first half of the year; charges in the prior period were £2.6m and were due to costs associated with advisory work on the segregated merger pensions agreement announced on 20 April 2020. Other non-trading income of £2.6m in the period relates primarily to the resolution of a legacy legal matter.

Finance costs

Net finance cost was £20.6m in the period, an increase of £5.9m compared to the comparative period. Net regular interest in H1 was £11.4m, a reduction of £6.7m compared to the prior year. This reduction was principally due to lower Senior secured notes interest charges following redemptions of the Group's now retired 2022 Floating Rate Notes ("FRN"). Consequently, Senior secured notes interest declined by £6.1m to £7.7m in the first half of the year when compared to the prior period.

Bank debt interest of £2.5m was £0.2m lower in the first half of the year. The Group's revolving credit facility was £14.0m drawn as at 2 October 2021. Amortisation of debt issuance costs were £0.4m lower at £1.2m, reflecting a lower quantum of borrowing facilities held by the Group.

Following the completion of the Group's refinancing in the first half of the year, the write-off of financing costs associated with borrowings now retired and facilities which have since been replaced were £4.3m in the period. Additionally, and as expected, a fee of £4.7m was incurred relating to the early redemption of the Group's now retired £300m 2023 dated Fixed Rate Notes.

In the prior period, other finance income of £4.6m related to the reversal of the impairment on interest on the Hovis loan note, reflecting the reassessment of the loan note's recoverability.

Taxation

The taxation charge for the 26 weeks ended 3 October 2021 of £9.7m (2020/21: £7.1m) comprised primarily a charge on operating activities of £6.3m (2020/21: £9.6m) and £3.5m due to tax rate changes. In the Government's 2021 spring budget, the rate of corporation tax effective from April 2023 will increase from the current level of 19% to 25%. Therefore, deferred tax balances have been restated depending on the rate which they are expected to unwind.

The Group currently retains brought forward losses which it can utilise to offset against future tax liabilities. Due to changes in tax legislation with respect to the offset of tax losses, the Group may recommence paying cash tax in low single digit £millions in the medium term.

Earnings per share

The Group reported a profit before tax of £30.7m in the period, a decrease of £19.8m compared to FY20/21 H1. Profit after tax in the first half of the year was £22.4m lower at £21.0m.

Compared to two years ago, profit before tax grew by £15.7m and profit after tax increased by £8.7m.

Adjusted profit before tax decreased by (2.9%) in the period to £46.4m, reflecting lower Trading profit in the period partly offset by lower net regular interest costs as described above. Adjusted profit after tax also decreased by (2.9%), to £37.6m in the first half of the year after deducting a notional 19.0% tax charge of £8.8m. Based on average shares in issue of 856.9 million shares, adjusted earnings per share were (3.8%) lower at to 4.4p.

When compared to two years ago, adjusted profit before tax increased by 46.3% due to both higher Trading profit and a significantly lower net regular interest charge of £11.4m. On this time frame comparison, adjusted profit after tax and adjusted earnings per share increased by 46.3% and 44.5% respectively.

Free cash flow

On a statutory basis, cash generated from operations was £28.1m compared to £52.6m in the comparative period. Cash generated from operating activities was £13.5m after deducting net interest paid of £14.6m. Cash generated from financing activities was £1.2m in the period versus (£165.5m) cash used in the prior year. The cash generated from financing activities in the first half of the year included the proceeds from the issuance of the Group's £330m 2026 dated 3.5% Fixed Rate Notes in the period. These proceeds were largely offset by the repayment in full of the Group's £300m 2023 dated 6.25% Fixed Rate Notes, the last remaining £20m of the Group's FRN, financing fees of £8.5m, an early redemption fee of £4.7m relating to the retirement of the £300m Fixed Rate Notes and dividends paid to shareholders of £8.5m. In the prior period, the Group repaid a drawdown of £85.0m on its committed revolving credit facility in the first quarter of the year. This followed an earlier prudent decision by the Group at the end of the previous financial year to draw this £85.0m sum, reflecting early stage wider uncertainties associated with the COVID-19 pandemic. Secondly, the Group used cash generated during FY19/20 to fund an £80.0m part redemption of its FRN on 17 June 2020. The last remaining tranche of these Floating Rate Notes was repaid in full on 3 June 2021.

The Group reported an outflow of Free cash in the period of £16.7m. Trading profit of £57.8m was £8.0m lower than the prior year for the reasons outlined above, while depreciation of £9.3m was similar to the prior year. Other non-cash items of £1.4m in line with FY20/21 and was predominantly due to share based payments.

Net interest paid of £14.6m was £2.9m lower than the prior year; this was largely due to reduced interest payments following the part redemptions of the Group's FRN undertaken during FY20/21 and the final redemption payment made in the period. As with the prior year period, no taxation was paid in the period due to the availability of brought forward losses and capital allowances.

Total pension contributions in the first half of the year were £19.5m (2020/21 H1: £26.3m); the reduction reflecting lower administration costs and the phasing of government levy costs. Pension deficit contribution payments were £18.9m in the period and administration costs were £0.6m.

Capital expenditure in the first half of the year was £6.3m; this was slightly lower than the prior year and reflects timing of payments of capital projects and also continued Covid restrictions for some projects at manufacturing sites. In the full year, the Group expects capital expenditure to be approximately £25m, as it looks to accelerate investment across the supply chain in the medium term. Such investment is planned to be in both growth projects supporting the Group's innovation strategy and cost release projects to deliver efficiency savings. One of the key objectives of this program, is that through improving operational efficiency, the resultant accretion in gross margin provides additional fund for brand investment. This strategy of investing in supply chain infrastructure represents a virtuous cycle to provide the fuel for the Group's branded growth model.

The first half of the year saw a working capital outflow of (£23.2m) compared to an inflow of £4.5m in FY20/21 H1. This outflow in the half was largely due to higher stock levels compared to six months ago as the Group builds stock for the Christmas season.

Re-financing fees paid during the period amounted to £13.2m and were largely due to advisory, legal and arrangement fees and a redemption fee of £4.7m as referred to above. Dividends paid in the first half of the year were £11.0m; of this, £8.5m were payments made to shareholders and £2.5m was due to a dividend match payment in favour of the Group's pension schemes.

Net debt and sources of finance

Net debt at 2 October 2021 was £345.0m, an increase of £12.3m compared to the previous year end and £58.1m lower than the same point a year ago. On a pre-IFRS 16 basis, Net debt was £327.7m which is £13.6m higher than the previous year end and £55.1m lower than FY20/21 H1. Free cash outflow in the period was (£6.7m) and the movement in debt issuance costs was £3.1m. As at 2 October 2021, the Group held cash and bank deposits of £8.4m.

During the period, the Group entered into a new revolving credit facility (RCF) with an updated lending group for a period of three years from May 2021 with extension options for up to two additional years. This new senior secured RCF is a committed facility of £175m with an interest margin grid broadly in line with the previous RCF. The prevailing coupon on the RCF is currently 2.5% above GBP SONIA and undrawn elements of the RCF attract interest equivalent to 35% of the applicable margin. Additionally, the Group issued new October 2026 dated £330m Fixed Rate Notes during the period. These notes attract an interest coupon of 3.5%; the first call date in 15 June 2023. As referred to above, the Group redeemed in full its £300m 2023 dated Fixed Rate Notes and the outstanding 2022 dated FRN in the period.

Pensions

IAS 19 results and commentary

The IAS 19 pension schemes valuation reported a surplus for the combined RHM and Premier Foods' pension schemes at 2 October 2020 of £607.7m, an increase of £67.8m compared to six months earlier. This is equivalent to a surplus of £455.8m net of a deferred tax charge of 25.0%. An increase in asset values is the key driver behind the increase in the surplus compared to 3 April 2021. Liabilities in each of the two sets of schemes were broadly unchanged, with the discount rate assumption constant at 2.0%. When compared to the position at 3 April 2021, the RHM scheme surplus increased by 3.7% while the Premier Foods' scheme deficit reduced by 8.8%.

A deferred tax rate of 25.0% is deducted from the IAS19 retirement benefit valuation of the Group's schemes to reflect the fact that pension deficit contributions made to the Group's pension schemes are allowable for tax. The deferred tax rate has been increased from the 19.0% rate used for the prior period to 25.0% following the change in the UK's corporation tax rate, effective from April 2023.

Assets in the combined schemes increased by £65.6m, or by 1.2%, to £5,317.5m in the period. RHM scheme assets increased by £30.0m to £4,489.4m while the Premier Foods' schemes assets increased by £35.6m to £828.1m.

In the combined schemes, liabilities decreased by just £2.2m, less than 0.1%, to £4,709.8m. The RPI inflation rate assumption used increased by fifteen basis points to 3.40%.

Following the segregated merger of the Group's pension schemes, effective June 2020, a funding valuation of the Premier Foods and Premier Grocery Products sections as at 31 March 2021 is currently in progress. Separately, the net present value of future pension contributions to the end of the respective recovery periods is in the range of £300-320m¹³.

Strong risk management is key to delivery of the business' strategic objectives. The Group has an established risk management process, the Executive Leadership Team performing a formal robust assessment of the principal risks bi-annually which is reviewed by the Board and Audit Committee. Risks are monitored at a segment and functional level throughout the year considering both internal and external factors.  The Group's principal risks and uncertainties were disclosed on page 46 to 53 of the annual report and accounts for the financial period ended 3 April 2021 and these remain relevant for the current period. The major strategic and operational risks are summarised under the headings of Impact of Government legislation, Macroeconomic and geopolitical instability, Market and retailer actions, Operational integrity, Legal compliance, Technology,  Product portfolio, HR and employee risk, Strategy delivery, International expansion. The Group notes the increase since the year end of the widely reported macro-economic and industry wide supply chain environment issues which it continues to navigate successfully through.

Alex Whitehouse                                                                                              Duncan Leggett

Chief Executive Officer                                                                                    Chief Financial Officer
 

The Company's Half year results are presented for the 26 weeks ended 2 October 2021 and the comparative period, 26 weeks ended 26 September 2020. All references to the 'quarter', unless otherwise stated, are for the 13 weeks ended 2 October 2021 and the comparative periods, 13 weeks ended 26 September 2020 and 13 weeks ended 28 September 2019.

The Company uses a number of non-GAAP measures to measure and assess the financial performance of the business. The Directors believe that these non-GAAP measures assist in providing additional useful information on the underlying trends, performance and position of the Group. These non-GAAP measures are used by the Group for reporting and planning purposes and it considers them to be helpful indicators for investors to assist them in assessing the strategic progress of the Group.

1. The Group uses Trading profit to review overall Group profitability. Trading profit is defined as profit/(loss) before tax, before net finance costs, amortisation of intangible assets, non-trading items (items requiring separate disclosure by virtue of their nature in order that users of the financial statements obtain a clear and consistent view of the Group's underlying trading performance), fair value movements on foreign exchange and other derivative contracts, net interest on pensions and administration expenses and past service costs.
2. Divisional contribution refers to Gross Profit less selling, distribution and marketing expenses directly attributable to the relevant business segment.
3. Adjusted EBITDA is Trading profit as defined in (1) above excluding depreciation.
4. Adjusted profit before tax is Trading profit as defined in (1) above less net regular interest.
5. Net regular interest is defined as net finance cost after excluding write-off of financing costs, early redemption fees, other interest payable and other finance income.
6. Adjusted profit after tax is Adjusted profit before tax as defined in (4) above less a notional tax charge of 19.0% (2020/21: 19.0%).
7. Adjusted earnings per share is Adjusted profit after tax as defined in (6) above divided by the weighted average of the number of shares of 856.9 million (26 weeks ended 26 September 2020: 849.6 million).
8. International sales remove the impact of foreign currency fluctuations and adjusts prior year sales to ensure comparability in geographic market destinations. The constant currency calculation is made by adjusting the current year’s sales to the same exchange rate as the prior year and two years ago, as applicable.
9. Net debt is defined as total borrowings, less cash and cash equivalents and less capitalised debt issuance costs.
10. Free cash flow is defined as the change in Net debt as defined in (9) above before the movement in debt issuance costs.
11. Net debt on a pre-IFRS 16 basis, which excludes lease liabilities.
12. IRI, 24 weeks ended 2 October 2021.
13. The schedule of future contributions are as agreed per the 2019 actuarial funding valuation for the Premier Foods Schemes, discounted using the Company post tax WACC of 7.5%.

Additional notes:

• The Directors believe that users of the financial statements are most interested in underlying trading performance and cash generation of the Group. As such intangible asset amortisation and impairment are excluded from Trading profit because they are non-cash items.
• Restructuring costs have been excluded from Trading profit because they are incremental costs incurred as part of specific initiatives that may distort a user’s view of underlying trading performance.
• Net regular interest is used to present the interest charge related to the Group’s ongoing financial indebtedness, and therefore excludes non-cash items and other credits/charges which are included in the Group’s net finance cost.
• Group & corporate costs refer to group and corporate expenses which are not directly attributable to a business unit and are reported at total Group level.
• In line with accounting standards, the International and Knighton business units, the results of which are aggregated within the Grocery business unit, are not required to be separately disclosed for reporting purposes. 

Responsibility statement of the directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

•      the condensed set of financial information has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK;

•      the interim management report includes a fair review of the information required by:

a)   DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first 26 weeks of the financial year and their impact on the condensed set of financial information; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)   DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first 26 weeks of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

The directors of Premier Foods plc are listed on pages 56-57 of the Premier Foods plc annual report and accounts for the 53 weeks ended 3 April 2021.

Approved by the Board on 16 November 2021 and signed on its behalf by:

Alex Whitehouse

Chief Executive Officer

Duncan Leggett

Chief Financial Officer