Premier Foods: announces results for H1/2013

London / UK. (pf) Premier Foods PLC announced its Half Year results for the six months to 30 June 2013, demonstrating continued strong momentum against its strategies. The complete news release is available on Premier Foods´ web server. Summary:

  • Grocery Power Brand sales up 4,0 percent, delivering six successive quarters´ growth
  • Underlying business Trading profit up 50 percent to 47,4 million GBP
  • Bread restructuring programme well ahead of plan
  • 20 million GBP SG+A cost savings activity delivered
  • Additional ten million GBP annualised complexity cost savings to be delivered in H2
  • FY 2013 Trading profit expected to be around the top end of market expectations
  • Recurring cash flow guidance for 2013 raised to 50 to 70 million GBP

Chief Executive Officer Gavin Darby: «A 50 percent increase in Trading profit is a very encouraging result given the highly competitive environment. This shows that our turnaround strategy is delivering at the bottom line. We have now grown sales in our Grocery Power Brands for six consecutive quarters as we continue to build partnerships with our customers, deepen our understanding of consumers and invest more effectively in supporting our brands».

«We have already completed the actions to deliver the promised 20 million GBP of overhead cost savings for 2013 and continue to keep a tight control over costs. The restructuring of our bread and milling business is ahead of plan and we are taking the decisions necessary to create a more sustainable platform for this business».

«The second half will see further plans to grow our Power Brands, in addition to a new ten million GBP of cost savings that we have now identified from our efforts to reduce complexity. As a result, we now expect Full Year Trading Profit to be around the top of market expectations».

«Looking further forward, we will continue to drive profitable top-line growth by focusing on growing our categories supported by ongoing cost savings from reducing complexity. At the right time, we will address our capital structure – from a position of growing strength given the delivery of our turnaround plan and the performance of our Power Brands. I am excited by the potential offered by Premier Foods in the longer term».

Grocery division

Branded sales in the Grocery division increased by 1,3 percent to 343,8 million GBP compared to 339,3 million GBP in 2012, driven by Grocery Power Brands sales growth of 4,0 percent. Total Grocery sales declined by 1,0 percent owing to a decrease in non-branded sales. Branded sales now account for over 90 percent of divisional sales while Grocery Power Brand sales comprise 66,5 percent of sales.

Grocery Power Brands grew by 4,4 percent in the second quarter this year – the sixth consecutive quarter, demonstrating the benefits of strategic focus, alongside sustained consumer marketing investment and consistently improving our customer partnerships. In the first six months of 2013, we led 100 percent more range reviews than the same period in 2012 which has resulted in over 37’000 incremental distribution points together with high distribution of new product launches across our customers´ estates.

Ambrosia benefited from a new marketing campaign on the core range while the new Devon Dream product was launched towards the end of the period, also supported by an advertising campaign. Bisto and Oxo performed well in the first six months of the year, reflecting their leading positions in a growing gravy and stocks category. Elsewhere the Deli-Box range, successfully launched last year, continues to contribute to the strong performance of Batchelors. We are also addressing growth opportunities in growing sales channels such as the discounter sector, through leveraging differentiated and affordable pack formats.

Divisional contribution performance was 77,4 million GBP, slightly ahead of the prior year. Consumer marketing activity is expected to be more equally balanced through 2013 compared to the prior year. The Grocery Power Brands benefited from seven TV advertising campaigns in the period, including two for Ambrosia.

Total Grocery branded sales grew by 1,3 percent with the strong Power Brand performance partly offset by weaker support brand sales. While sales of Bird´s custard have performed well in value-orientated channels, this has been offset by lower sales in Homebaking, Cadbury cake and Homepride cooking sauces. Over the medium term, support brands will become a more integral part of the Group´s new focus on growing its categories.

Non-branded sales in the Grocery division decreased by 18,5 percent in the period, due to contract withdrawals in Desserts and powdered Beverages and stronger relative performance in branded Cake compared to non-branded.

Savings in manufacturing controllable costs are expected to continue to deliver gross savings in 2013 through process improvements at our manufacturing sites.

Bread division

Sales for the Bread division increased by 8,2 percent to 355,9 million GBP in the half year to the end of June, while sales excluding Milling declined 0,7 percent to 240,6 million GBP in the period. Milling sales were 115,3 million GBP in the first six months of 2013, up 33,0 percent compared to the prior year, principally reflecting higher pricing realised following the 2012 harvest. Divisional contribution declined by 4,4 million GBP to 14,3 million GBP in the half year to 30 June 2013.

Following the previously announced loss of a branded and non-branded bread contract, the Bread business is undergoing a year of major restructuring which is progressing well ahead of plan. In the first half of the year, the Eastleigh and Birmingham bakeries and Glasgow mill have all closed. The bakery in Greenford, West London, is expected to close in August. Additionally, the reconfiguration of our logistics network is now complete with the implementation of significant simplification of our direct to store delivery network.

The lost volume and margin from this contract is expected to be offset by manufacturing and distribution cost savings from the site closures and reconfigured logistics network. The full year cash costs associated with our restructuring programme are expected to be approximately 28 million GBP, of which 15,9 million GBP was incurred in the first half of the year. The Group expects to receive total cash proceeds relating to these site closures of ten to 15 million GBP in 2014.

The Bread business now has a focused and dedicated organisational structure and has been relocated to our High Wycombe offices. Additionally and as previously announced, we are reconfiguring our Milling business unit to establish a separate business unit focused on our free trade customers which will be serviced by our Southampton, Manchester and Newbridge mills. Alongside this, we are vertically integrating our Mills at Andover, Gainsborough, Selby and Wellingborough into our Baking and Grocery businesses. The costs associated with the proposed closure of the Barry mill will be absorbed within the full year 28 million GBP restructuring costs.

In this year of restructuring, marketing investment is more focused, with the imminent launch of new Hovis packaging formats and improved Best of Both recipe formulation. Additionally, we have recently announced a five year licensing agreement for Hovis Breakfast Bakes, as we seek to build the Hovis brand in adjacent categories.

We are also delivering significant improvements in our plant capability through the roll out of a major refurbishment programme, resulting in increased capital investment levels per bakery.

Cost Savings Programme and SG+A costs

The previously announced SG+A cost savings programme has progressed very well with all activity now complete. The full savings of 20 million GBP will flow through during the remainder of the year. The SG+A cost base reduced by 20,0 million GBP in the first half of the year to 44,3 million GBP compared to 64,3 million GBP in the same period last year.

The restructuring of the SG+A cost base announced at the beginning of 2012 will have delivered annual run-rate savings in excess of 70 million GBP by the end of this year. This represents a reduction of nearly 50 percent on the 2011 exit position of approximately 155 million GBP per annum. This has been achieved through right-sizing both the commercial and support functions to ensure the overhead cost base better reflects the Company´s scale following the major disposal activity in 2012.

The costs to achieve the delivery of the savings programme in the first half of this year were 9,9 million GBP, with a further one million GBP expected to come through in the second half of the year.

As previously indicated, the Group continues to review ways to reduce complexity across the organisation. Initial efforts have focused on reducing the number of product units (or SKUs), working with fewer suppliers on more strategic partnerships and a planned consolidation of the Grocery logistics network this year. As a result, the Group expects a further ten million GBP annualised savings will be delivered in the second half of 2013. Additional savings across the Group are expected in future periods as we progress with business complexity reduction.

Outlook + Guidance

The consumer environment remains highly competitive. Looking forward, the Company will drive profitable top-line growth by focusing on growing our categories supported by ongoing cost savings from reducing complexity. The SG+A cost savings programme activity from right-sizing the business following non-core disposals is complete, the Bread restructuring programme is well ahead of plan and the Company expects to deliver Trading profit for 2013 around the top end of market expectations, also raising recurring free cash flow guidance.