Introduction to Premier Foods September 2016
CAUTIONARY STATEMENT
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 looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Accordingly, undue reliance should not be placed on forward looking statements.
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CONTENTS 1
History & introduction
2
Why invest in us?
3
Current guidance & Nissin
4
Recent results
5
Capital structure
6
Appendix
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1
History & Introduction
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A BRIEF HISTORY Timeline Ownership
2002
2003
2004
2005
Private
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Public
Strategy
Building scale
Restructuring
Category Growth
M&A
Acquisitions
Divestments
Organic focus Flavourings & Seasonings 50% 40% 30% 20% 10% 0%
No. 1 Market Value: £409m
PF
No.2
No.3
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WE ARE ONE OF THE UK’s LEADING AMBIENT GROCERY SUPPLIERS 6.3 5.7
% Share
3.8
3.4
3.3
3.2
3.0
2.8
2.8
2.6
2.3
2.0
1.9
Total UK ambient grocery market: £25bn Source: Kantar Worldpanel, 52 weeks ending 19 June 2016, excludes Foodservice and out of home
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A FOCUSED PORTFOLIO IN AN AGILE ORGANISATION Business unit structure designed to deliver growth Grocery
Sweet Treats
International
Corporate functions
Legal IT Procurement Group finance
Employees
Grocery 1,560
Sweet Treats 2,175
Corporate Affairs Central Human Resources
Group 3,735
Sales Marketing Innovation Technical Commercial Finance Business unit Human Resources
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SUPPLY CHAIN INFRASTRUCTURE
CARLTON SKELMERSDALE (D) MORETON STOKE
WORKSOP CHARNWOOD CORBY (D)
KNIGHTON ASHFORD SWEET TREATS SITES
RUGBY (D) LIFTON
ANDOVER
GROCERY SITES
‘D’ indicates distribution site
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HEALTH & NUTRITION Refreshed 3 year plan to encourage healthier choices Market context • Consumers increasingly looking for healthier options • Sugar has become a major focus
• Government to publish Childhood Obesity Strategy in 2016 Comprehensive 3-year plan covering broad portfolio •
Reduce sugar in cake, desserts and cooking sauce brands
•
Introduce calorie caps for individual cakes and expand single portion packs as % of portfolio
•
Launch nutritious new products with wholesome ingredients
•
Reduce salt levels further
•
Continue voluntary front of pack traffic light labelling and tighten marketing restrictions
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2
Why Invest In Us?
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OUR INVESTMENT PROPOSITION
Focused on driving category growth
Broad stable of leading brands driving category growth through marketing and innovation
Diverse manufacturing processes provide wide scope to innovate
Strong capabilities to serve today’s multi-format retail environment
Continued cost reduction supports brand investment
Strong operational cash flows
Committed and experienced management team
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WE ENJOY LEADING CATEGORY POSITIONS Flavourings & Seasonings
No. 1
No. 1
Ambient Cakes 30%
No. 1
Ambient Desserts 50%
Market Value: £965m
Market Value: £375m
40%
20%
30%
20%
10%
10% 0%
0% PF
Cooking Sauces & Accompaniments
No. 1
No.2
PF
No.3
Quick Meals, Snacks & Soups 40%
No.2
No.3
No. 1
Market Value: £391m
30%
20% 10% 0% PF
No.2
No.3
Share source: Kantar Worldpanel, 52 w/e 22 May 2016, IRI 52 w/e 21 May 2016
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CONSUMER FOCUSED APPROACH Our innovation strategy starts and ends with consumers Insight
Innovation
Execution
Building in depth consumer understanding
Developing new products that make consumers lives easier
Supporting with media & outstanding in-store execution
Macro Consumer Trends
Convenience
Foodieness
Wellness
Indulgence
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INNOVATION AND BRAND INVESTMENT 9 brands planned for TV advertising in FY16/17
Sales from innovation
18.1%
Consumer marketing (£m)
20.0%
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36
42-44
25
11.3% 6.9%
FY14
FY15
FY16
Target
2013/14 2014/15 2015/16 2016/17F
Source: IRI, New & Existing product development, 52 w/e 19 March 2016
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FY15/16: 6 BRANDS DELIVERED 3.4% SALES GROWTH Driven by marketing investment and innovation Top 6 performing brands
Ambrosia + Batchelors
8.5% 5.9% 3.3%
3.4%
1.8%
(2.9%) Sales growth %
Marketing % Sales
c.60% of branded sales
NPD % Sales
Sales growth %
Marketing % Sales
c.25% of branded sales
NPD % Sales
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BRANDS RETURN TO GROWTH FOLLOWING INVESTMENT 6 Brands have received disproportionate focus so far
2014 Sales decline
3.5%
Marketing Investment & Innovation (15 months) Investment
£31m
Product Launches
20
2015/16 Sales growth
3.4%
All data is Company sourced FY15/16 and FY14
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WHAT’S NEXT FOR AMBROSIA AND BATCHELORS? TV advertising and new product launches Ambrosia Deluxe Custard and Frozen Custard
Batchelors Protein & Veg Pots and Soup ranges
Consumer Trends
Consumer Trends
Premium
Indulgence
Convenience
Foodieness
Healthier
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UK FOOD RETAILING DYNAMICS Requires flexibility, agility and a category approach A continually changing and challenging environment 3.0
Changing trip dynamics
0.0 (3.0) Jul 2014
Mar 2016
Food deflation
1. 2. 3.
Shifts in shopper dynamics
Market share
Promotional strategies
Range reviews
Management changes
Changing retailer strategies
Our channel strategy To move with or ahead of the shopper Presence across channels with appropriate or differentiated product portfolio Outgrow each channel
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GROWTH CHANNELS Delivering strong growth; broadly in line with market Online1
Hard Discounters1,2
+9.6%
+9.1%
Market
Premier Foods
• Head of Digital appointed • Online specific joint business plans • Tracking tools now used to ensure maximum impact for user • Improved image relevancy and search functionality
14.8% Market
13.8% Premier Foods
• Growing in both Grocery and Sweet Treats • Non-branded Mince pie business delivered especially strong volumes • Non-branded desserts contract wins
Source: 1 - Kantar Worldpanel, 52 w/e 27 March 2016; 2 – Hard discounters for Premier Foods is FY15/16 Turnover
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SUPPLY CHAIN EFFICIENCY Targeting further cost reduction across supply chain in FY16/17 Line Efficiency
Streamlined Teams
• 3rd party expertise advising on manufacturing process • Targeting improved quality and product consistency • Reduced waste and increased efficiency
• Planned headcount reduction across Grocery manufacturing sites • Focuses on line management • Expected to increase flexibility across plant lines
Logistics Restructuring
• Significant opportunity to consolidate distribution centres • Potential savings in both warehousing and distribution • Majority of restructuring costs & benefits FY17/18
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REVENUE MANAGEMENT Premiumisation strategy and promotional efficiency Premiumisation
Typical % premium per serving
Promotional Efficiency
Display
+25-100%
• Off-shelf feature key to driving volumes • 27% more shipper volumes over Christmas
+5%
ROI Premium product sales % total Group sales
3%
Premium NPD launches as % total launches
65%
• Increased return on investment in critical Q3 trading period
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STRONG OPERATIONAL CASH FLOWS FY15/16 Net debt reduction of £51m; lower reduction in FY16/17 £m 600
4.0x 585
131
580
3.6x
560 540
42
520
0
8
526
8
534
Knighton
Net debt FY15/16
500
25
480 460
16
13
Depreciation
Pensions
440 420 400 Net debt FY14/15
Trading profit
Capex
Interest
Working capital Restructuring / Other
Net debt Pre-Knighton
Net debt reduction expected to be lower in FY16/17 as pension deficit payments increase Operational cash generation capacity remains strong
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COMMITTED AND EXPERIENCED MANAGEMENT TEAM All with strong consumer sector backgrounds
Chief Executive Officer
Chief Financial Officer
Grocery Managing Director
Sweet Treats Managing Director
International Managing Director
Gavin Darby
Alastair Murray
Alex Whitehouse
Graham Hunter
Jette Andersen
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3
Current guidance & Nissin
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FY16/17 SALES GUIDANCE Expect FY16/17 sales growth +2-4%; additional Nissin opportunities
Marketing Innovation
Grocery chilled Revenue mgmt
Growth channels
Existing growth momentum
Cake on the Go
Sales guidance +2-4%
Opportunity
International
Strategic initiatives
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CAKE ON THE GO NATIONAL ROLL-OUT Significantly under-developed On the Go cake market “On the Go” food in significant growth Cake category is underdeveloped
Food on the Go market is now worth £19.3bn and is growing at 1.6% YoY1
Sweet Treats Categories
National Roll-Out 1. Manufacturing Capability In Place • £20m investment has twin-pack format capability • Further innovation on Exceedingly Good range 2. New team recruited • 10 strong team with relevant experience • Dedicated field merchandising 3. Marketing – Outdoor advertising & TV sponsorship Instore Activation
Launch Range
% Sales from On the Go Products Cake Biscuits Confectionery
5.0% 11.0% 35.0% 1. Kantar Worldpanel Out of Home Snacking 52 w/e 27th March 2016
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GROCERY CHILLED EXPANSION: AMBROSIA EXAMPLE Ambrosia has ability to expand into Chilled & Frozen 2
1
DEEP CONSUMER INSIGHT
AMBROSIA BRAND EQUITIES
3
49%
95%
100 years
Household penetration
Prompted awareness
Brand heritage
Full Research and U&A study
Time of day
Motivation
Need State Modelling
4
CHILLED OPPORTUNITIES IDENTIFIED
Simple Goodness
Good start to the day
End of day reward
PRODUCT ROLL-OUT
Frozen Custard Ice Cream
Chilled Desserts
Breakfast
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INTERNATIONAL CAKE EXPANSION Increasing our reach into large and accessible new markets 1
2
US market opportunity +4.0%
+5.7%
YoY
YoY
£7.6bn
Middle East market opportunity
Total Cake Market £120m (Nielsen Dec 15 MAT) Modern trade largest sector and showing category growth YOY £120m
£76m
£3.1bn
White space Fresh Prepared cakes & pies
Ambient cakes and pies Very long shelf life
Total Cake KSA & UAE
Of Which Modern Trade
Use Premier’s differentiated offering with unique formats and packaging to access white space
Source: Mintel June 2014
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NISSIN - OPPORTUNITIES TO DRIVE MUTUAL GROWTH NISSIN BRANDED PRODUCTS IN UK
PREMIER BRANDED PRODUCTS USING NISSIN IP
Leverage Premier Foods category positions Drive authenticity in market INTERNATIONAL GROWTH
SUPPLY CHAIN OPPORTUNITIES
Example markets
Factories
Introduce Nissin products under Batchelors Development of co-branded products
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2
Employees
c.1,200
c.3,000
c.1,700
Sales (USD)
310m
300m
192m
Population
318.9m
1,364.3m
206.1m
Utilise Nissin’s international presence in 19 countries to distribute PF brands and products
Sharing production expertise to improve efficiency and quality Explore procurement opportunities Sources: World bank, USA sales include Mexico & Columbia
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CASH GUIDANCE FOR FY16/17 FY16/17 guidance Working capital
£m Neutral to positive
Depreciation
£17-18m
Capital expenditure
£20-25m
Interest – cash
£40-£43m
Interest – P&L
c.£44-45m
Tax – cash
Nil
Tax – notional P&L rate
20.0%
Pension deficit contributions
£48m
Pension administration & PPF levy cash costs
£8-£10m
Restructuring costs
£10-£12m
Consumer marketing
£42-£44m
Capex programme expected to deliver strong payback cost release projects Cash tax expected to be nil in medium term (subject to Finance Act 2016) Pension administration & PPF cash costs reflected in Operating profit but not Trading profit
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EU REFERENDUM The FY16/17 financial impact to the Group of the UK voting to leave the EU is low
Foreign currency movements 1.
Group is net purchaser of around €50m per annum
2.
Currency exposure substantially hedged for FY16/17
3.
Lower US$/£ rates helpful to International growth plans
US$ €50m
Economic 1.
Consumer staples less exposed to any wider economic slowdown
2.
Financial market movements will affect net pensions position
3.
Pension schemes have significant hedging in place
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4
Recent results
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POSITIVE SALES GROWTH TRAJECTORY FY15/16 results provide strong platform for future growth prospects
+0.6%
Full Year sales growth
+1.4% +1.9% Q4 & FY16/17 Q1 sales growth
£131m
+4.6%
£51m
Full Year Trading profit
Adjusted eps growth
Net debt reduction
Continued demonstration of strategic delivery
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GROUP SALES GROWTH TRAJECTORY Demonstrates the strategy is working FY14/15
Q1
Q2
Q3
FY15/16
Q4
Q5
Q1
Q2
Q3
FY16/17
Q4
+2.4% +1.4%
Q1 +1.9%
+0.1% (0.6%) (1.6%)
(4.9%) (6.6%)
(5.5%)
(6.8%)
- Trend adjusted for effect of early Easter in 2015
FY14/15 Q1-Q4 trends re-stated to reflect commercial costs re-alignment
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FY15/16 ADJUSTED EARNINGS PER SHARE 4.6% adjusted eps growth due to lower interest costs £m
FY15/16
FY14/15
Change (%)
Trading profit1
131
131
0.0%
Net regular interest
(45)
(48)
6.0%
86
83
3.5%
(17)
(17)
1.5%
69
66
4.8%
826.0
824.4
-
8.3p
8.0p
4.6%
Adjusted PBT Notional tax @ 20.0%/ 21.0% Adjusted earnings Weighted average shares in issue (million) Adjusted earnings per share (pence)
Adjusted PBT up +3.5% due to lower interest charges compared to prior year Issued share capital of 826.6m at 2 April 2016
1 – Underlying Trading profit, excludes impact of joint ventures entered into
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INTERNATIONAL SALES UP 18%1 Strong growth in USA & Australia; People investment in FY15/16 Australasia
USA
People
+47%
+4.6ppt
+23%
+2.2ppt
FY Sales growth
Indian sauces market share
FY Sales growth
Indian sauces market share
1. Encouraging results from Mr Kipling cake trial in USA in Q3 2. Apple, Fruit and Mississippi Mud Pies in 250 stores
9 → 28
• Significant increase in team since 2014 • Investment focused on strategic growth geographies ‒ USA, Australia, Middle East
1 – Constant currency, including Ireland
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Capital structure
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AN ESTABLISHED AND DIVERSIFIED CAPITAL STRUCTURE
£m
£500m Senior Secured Notes due in 2020 and 2021: – £325m Fixed notes @6.5% – £175m Floating notes @5.0%+LIBOR
350 300 250
£272m Revolving Credit Facility
200
– Streamlined bank syndicate
150
Fixed payment schedule with Pension Trustees through to 2019 Net debt/EBITDA: Medium term target 2.5x ‒ FY15/16 = 3.6x
Dividend payable when Net debt / EBITDA