Introduction to Premier Foods September 2016

Introduction to Premier Foods September 2016 CAUTIONARY STATEMENT Certain statements in this presentation are forward looking statements. By their ...
Author: Piers Norris
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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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2

CONTENTS 1

History & introduction

2

Why invest in us?

3

Current guidance & Nissin

4

Recent results

5

Capital structure

6

Appendix

3

3

1

History & Introduction

4

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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7

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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5

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