Interim Results
Premier Foods plc
04 September 2007
Premier Foods plc Interim Results 2007
Premier's year of transformation
Interim results for the six months to 30 June 2007
Unaudited Unaudited
six months to six months to Change
30 June 2007 1 July 2006
£m £m
Turnover* 899.1 366.5 145.3%
Trading profit** 96.8 45.6 112.3%
Operating profit* 52.2 42.4 23.1%
Profit before tax* 13.9 27.6 (49.6%)
Profit after tax* 21.9 20.5 6.8%
Cash inflow from operating activities 99.4 52.3 90.1%
Basic earnings per share* 3.1p 6.6p (53.0%)
Adjusted earnings per share*** 5.3p 5.6p (5.4%)
Dividend per share 4.3p 3.95p 8.9%
• Campbell's integration completed: £28m of annual cost synergies
confirmed
• RHM integration proceeding at pace: £85m of annual cost synergies
confirmed
• Core Premier trading profit** up 4.4%
• Good start to H2 sales, we expect to hit underlying sales growth
targets for the full year
• Exciting new products coming to market
• Bread prices increased reflecting increased wheat costs
• Profit targets for the year remain unchanged
• Interim dividend up 8.9% to 4.3 pence per ordinary share
Robert Schofield, Chief Executive of Premier Foods plc, said,
'We are delighted by the way that the integration of Campbell's has been
successfully completed within 8 months of acquisition and the exciting
innovation we have for the brands in the second half. The integration of RHM
continues at pace and to plan and we remain confident that we will deliver the
total of £113m of cost synergies targeted from these two acquisitions.
We have had a good start to trading for the second half where a combination of a
strong programme of new product launches, improved promotional strategies across
the enlarged Group and cooler weather has helped to drive sales growth. We
remain confident that we will deliver underlying sales growth for the year in
line with our 1.5-2% target. Wheat prices have seen an unprecedented level of
increase over the last few weeks and we are pleased to have been able to
implement price rises across our bread and flour products from the start of
September. However, if current wheat prices persist additional bread and flour
price increases will be required. Other raw material cost inflation is also
significant, making price increases across many of our products necessary.
Whilst mindful of the turbulence that we have seen in the bread market over the
last few months, we anticipate that we will be able to meet our sales and
trading profit growth targets for the year.'
* Continuing operations
**Trading profit is defined as operating profit from continuing operations
before exceptional items, amortisation of intangible assets, the movement in the
IAS39 valuation of forward foreign exchange contracts, which cannot be predicted
and the pension credits or charges in relation to the difference between the
expected return on pension assets and interest costs on pension liabilities.
Core Premier trading profit has been calculated as the sum of trading profit for
the Convenience, Pickles, Sauces & Meat-free and Spreads, Desserts & Beverages
product groups and excludes Campbell's and Chivers Ireland. The year on year
growth for the Core Premier trading profit has been calculated after reducing
the trading profit for 2006 by £5.0m being the impact of the end of the Cadbury
hot beverages licence.
***Adjusted earnings per share is calculated as set out below:
2007 2006
H1 H1
£m £m
Trading profit 96.8 45.6
Less net cash interest (42.1) (19.7)
Less regular amortisation of debt issuance costs (1.6) (0.6)
Adjusted profit before tax 53.1 25.3
Less tax at 30% (15.9) (7.6)
Adjusted profit after tax 37.2 17.7
Divided by:
Average shares in issue (millions) 699.7 314.1
Adjusted earnings per share 5.3p 5.6p
As a consequence of the changes in commercial structure as a result of
acquisitions and disposals, there are fundamental differences between the
primary financial statements of the current and comparative periods. For this
reason the Group has chosen to comment on trading performance on a pro forma
basis alongside statutory financial information. The pro forma presentation
treats acquired businesses as if they had been owned for the whole of the
current and prior year reporting periods.
For further information:
Premier Foods plc +44 (0) 1727 815 850
Paul Thomas, Finance Director
Gwyn Tyley, Investor Relations Manager
Citigate Dewe Rogerson +44 (0) 20 7638 9571
Michael Berkeley
Justin Griffiths
Angharad Couch
Nicola Smith
A presentation to analysts will take place on 4th September 2007 at 9.00am at
Haberdashers' Hall, 18 West Smithfield, London, EC1A 9HQ. In addition, the
presentation will be available via webcast at www.premierfoods.co.uk
Operating review - continuing operations
£m 2007 2006
H1 H1
Sales
Grocery 462.7 366.5 26.2%
Bread Bakeries 235.5 - -
Culinary Brands 67.2 - -
Cakes 73.5 - -
Customer Partnerships 60.2 - -
Total sales 899.1 366.5 145.3%
Trading profit* 96.8 45.6 112.3%
Trading profit margin 10.8% 12.4%
Amortisation of intangibles (12.5) (4.2) 197.6%
Foreign exchange valuation items credit/(charge) 0.9 (1.9) -
Pension financing credit 7.5 1.6 -
Operating profit before exceptional items 92.7 41.1 125.5%
Exceptional items (40.5) 1.3 -
Operating profit 52.2 42.4 23.1%
*Trading profit is defined as operating profit before exceptional items,
amortisation of intangible assets, the revaluation of foreign exchange contracts
under IAS39 and pension credits or charges in relation to the difference between
the expected return on pension assets and interest costs on pension liabilities
The first half of 2007 has seen a transformation in the scale and breadth of
Premier's operations following the acquisition of RHM plc in March 2007. This
followed the acquisition of Campbell's in August 2006 and the pro forma sales of
the combined Group has more than trebled the previously reported sales of
Premier in H1 2006.
We are delighted by the progress we have made integrating these businesses. The
Campbell's business has been integrated into our Grocery business within the
Convenience Foods, Pickles, Sauces & Meat-free product group. The integration
proceeded very smoothly and was completed in April 2007. We are on track to
deliver the £28.0m of annual cost synergies that we identified at the time of
the acquisition, of which £2.0m have been recorded in the first half of 2007. A
further £5.0m of cost synergies are forecast to be delivered in the second half
of 2007.
Similarly, the integration of RHM into Premier's operations has been proceeding
to plan. We have made significant steps on the integration in the 5 months
since acquisition: we have closed the RHM head office; combined the senior
management teams into a single operating board; commenced the integration of the
Culinary Brands division; completed a review of the combined manufacturing
facilities and announced the proposal to close 6 factories; commenced the
integration of all our operations in the Republic of Ireland into a single
business unit; and integrated the management teams of our RF Brookes, Avana and
Charnwood businesses. We have confirmed the total level of annual cost
synergies at £85.0m, of which £10.0m are forecast to be delivered in the second
half of 2007. We expect to complete the integration of RHM on schedule by the
end of 2009. In addition, we are encouraged by the untapped organic growth and
cost saving opportunities in the RHM business.
We have completed the external benchmarking of RHM's senior management group, a
process we go through on all our major acquisitions, and we are pleased that the
results confirm the high quality of the RHM team. Over 40% of the senior
management positions in the enlarged Group have been filled by RHM managers. In
addition, the RHM team has responded positively to the change from a divisional
to a functional structure which has enabled synergies to be realised and
provides additional growth opportunities.
Total sales from continuing operations increased by 145.3% to £899.1m, operating
profit from continuing operations increased by 23.1% to £52.2m and trading
profit increased by £51.2m or 112.3% to £96.8m. The comparative figures for 2006
exclude the Fresh Produce business, which was sold on 30 March 2007 and has been
recorded within discontinued operations within these financial statements. The
increase in both sales and operating profit is primarily due to the acquisitions
of Campbell's on 14 August 2006 and RHM on 16 March 2007.
Branded sales, on a pro forma basis, now represent 57% of sales, down from a
reported 61% in the first half of 2006. This decrease is due to the inclusion
of RHM, which, at acquisition, was approximately 50% branded, partly offset by
inclusion of Campbell's, which, at acquisition was approximately 94% branded.
A traditional like-for-like analysis of the results for the period is of limited
value given the scale of the transformation of Premier. Therefore, we have
presented a pro forma analysis of the movements in sales and trading profit for
each segment and product group to give a more detailed understanding of the
trading of each. It must be noted, however, that the pro forma 2006 comparatives
for Campbell's and RHM are for a period when the businesses were not under the
control of Premier's management.
Grocery
'Grocery' comprises Premier Convenience Foods, Pickles, Sauces & Meat-free and
Spreads Desserts & Beverages and includes the Campbell's and Chivers Ireland
businesses. Sales of products by Premier to Chivers Ireland in 2006 have been
reclassified to Chivers Ireland. Pro forma results include 6 months trading of
Campbell's and Chivers Ireland in H1 2006 and a full 6 months of trading of
Chivers Ireland in H1 2007.
£m 2007 2006
H1 H1
Reported
Sales
Convenience Foods, Pickles, Sauces & 216.5 224.4 (3.5%)
Meat-free
Spreads, Desserts & Beverages 117.0 137.8 (15.1%)
Campbell's 120.1 - -
Chivers Ireland 9.1 4.3 -
Total Grocery 462.7 366.5 26.2%
Trading profit
Convenience Foods, Pickles, Sauces & 16.7 16.2 3.1%
Meat-free
Spreads, Desserts & Beverages 25.7 29.4 (12.6%)
Campbell's 21.2 - -
Chivers Ireland (0.1) - -
Total Grocery 63.5 45.6 39.3%
£m 2007 2006 2006 2006
H1 H1 Adjustments* Adjusted
Pro forma
Sales
Convenience Foods, Pickles, Sauces & 216.5 224.4 - 224.4 (3.5%)
Meat-free
Spreads, Desserts & Beverages 117.0 137.8 (14.2) 123.6 (5.3%)
Campbell's 120.1 119.8 - 119.8 0.3%
Chivers Ireland 10.2 9.5 - 9.5 7.4%
Total Grocery 463.8 491.5 (14.2) 477.3 (2.8%)
Trading profit
Convenience Foods, Pickles, Sauces & 16.7 16.2 - 16.2 3.1%
Meat-free
Spreads, Desserts & Beverages 25.7 29.4 (5.0) 24.4 5.3%
Campbell's 21.2 26.5 (6.1) 20.4 3.9%
Chivers Ireland (0.1) 0.5 - 0.5 -
Total Grocery 63.5 72.6 (11.1) 61.5 3.3%
* The adjustments to 2006 represent our estimate of the additional sales and
profit contribution from the Cadbury hot beverages licence which ended in May
2006 and non-recurring trading distortions from the pre-acquisition period in
Campbell's.
Convenience Foods, Pickles, Sauces & Meat-free
Sales of Convenience Foods, Pickles, Sauces & Meat-free decreased by £7.9m
compared to the first half of 2006 due to reduced sales of branded baked beans,
which were heavily promoted during the launch of Branston beans in 2006 and
lower sales of own label convenience foods, partly offset by increased sales of
our market-leading Meat-free brand, Quorn, Branston relishes and Loyd Grossman
cooking sauces.
Our Meat-free business has continued to grow albeit at a temporarily slower rate
during the first half of this year. This was the consequence of reduced
promotional activity behind the Quorn and Cauldron brands during the
commissioning of our new chilled manufacturing facility at Methwold in Norfolk.
The plant is now fully operational and we have seen the rate of sales growth
since the start of the second half return to its previous higher levels. We
have also announced an investment of £35.0m in a new fermentation plant at our
Belasis factory, which will significantly increase its capacity to support the
continued rapid growth of Quorn.
We expect the second half of 2007 to show good year-on-year improvement
following the successful launches of 'Branstein Beans' with Omega 3 oils and '
Bloomin Big Beans', whilst Loyd Grossman stir in sauces and foodservice sauces
are set to be launched in the latter half of 2007.
Spreads, Desserts & Beverages
Sales in our Spreads, Desserts & Beverages product group decreased by 15.1% to
£117.0m, primarily as a result of the end of the Cadbury hot beverages licence
in May 2006 and the exit from a number of low margin own label spreads
contracts. We estimate that the Cadbury hot beverages licence contributed sales
of £14.2m and trading profit of £5.0m to results for the first half of 2006.
Adjusting for this, like-for-like sales declined by 5.3%, primarily because of
the reduced own label sales, whilst like-for-like trading profit increased by
5.3%, primarily because of an improved cost performance.
During the second half of 2007, we will continue to focus on driving increased
sales of individual desserts. The acquisition of RHM has added some fantastic
brands to our spreads brand portfolio. Following the integration of the Culinary
Brands marketing team into Premier in H1, the focus for the second half of 2007
will be on optimising the brand strategies across the enlarged branded
portfolio.
Campbell's
We are pleased by the performance of the Campbell's business in the first half
of 2007, having arrested the 4.0% rate of sales decline at the time of
acquisition whilst also completing the integration of the business into Premier
in only 8 months. Pro forma results include 6 months trading of Campbell's in H1
2006. We have seen strong growth of Oxo and Fray Bentos, have stabilised sales
of Batchelor's and reduced the rate of decline of Homepride. The 2006 pro forma
trading profit for Campbell's business includes the effect of trading
distortions as the business was being prepared for sale by its previous owners.
We estimate that these trading distortions increased trading profit in H1 2006
by £6.1m and that the comparable trading profit figure would have been £20.4m.
We have been working hard at rejuvenating the Campbell's brands and are excited
by the prospects for the second half of 2007, particularly the launch of
Batchelor's Soupfulls ready-to-eat soups and Oxo liquid stock.
Chivers Ireland
We acquired Chivers Ireland, a leading supplier of preserves to Ireland's retail
grocery and foodservice markets and the distributor of Premier's brands in the
Republic of Ireland, in January 2007. For 2006, we have classified under
Chivers Ireland the sales Premier made to Chivers Ireland prior to its
acquisition. The increase in reported sales from 2006 to 2007 primarily
reflects the addition of sales of Chivers Ireland's own products to the sales of
Premier products that they distribute.
Bread Bakeries
£m 2007 2006
H1 H1
Reported
Sales 235.5 -
Trading profit 9.6 -
Pro forma
Sales 398.4 402.8 (1.1%)
Trading profit 19.0 37.9 (49.9%)
Pro forma results include 6 months trading of RHM in H1 2006 and 2007.
Pro forma sales in our Bread Bakeries segment decreased by £4.4m to £398.4m,
which reflects lower bread volumes, partly offset by higher prices. Pro forma
trading profit for the Bread Bakeries segment decreased by £18.9m to £19.0m.
This was a result of significantly higher wheat prices in the first half of 2007
compared to the same period in 2006, increased distribution costs and overheads
and reduced contribution from the lower bread volumes, partly offset by
increased prices. The decreased volumes were a result of a general decline in
the consumption of bread in the UK and increased competitor activity.
We recently announced proposals to close our bakery in Bradford and distribution
depot in Telford. We are mindful of the impact that such plant closures have
but it is essential that we take action to remain competitive in the market
place.
In the second half, we have already seen a successful advertising campaign
behind our market leading Hovis Best of Both bread which is a white loaf that
has the nutritional benefits of wheatgerm. Hovis Seed Sensations was
successfully launched in July and we look to continue to build on the strong
track record of innovative new product development of the brand.
Over the summer the price of wheat has seen an unprecedented level of increase,
rising in a matter of weeks to a level approximately double that of 2006. This
is a significant issue for the whole of the food industry, not just Bread
baking. We are pleased to have achieved price increases from the start of
September which should recover a significant part of the cost increase. If wheat
prices remain at or above the current levels, then further increases in our
bread and flour prices may be required.
Culinary Brands
£m 2007 2006
H1 H1
Reported
Sales 67.2 -
Trading profit 11.2 -
Pro forma
Sales 119.5 123.3 (3.1%)
Trading profit 18.5 24.2 (23.6%)
Pro forma results include 6 months trading of RHM in H1 2006 and 2007.
Pro forma sales in our Culinary Brands segment decreased by £3.8m to £119.5m.
The decrease was principally due to reduced promotional activity in the first
half of 2007 compared to 2006 and trade loading. Pro forma trading profit for
the Culinary Brands segment decreased by £5.7m to £18.5m as a result of the
lower sales and increased raw material costs.
We are delighted by the strong start that Culinary Brands has made to the second
half of 2007. We have launched a new Sharwood's Thai range, which should
consolidate Sharwood's position as the number one brand in Asian Meal Solutions,
which comprises a variety of cooking sauces, stir fry sauces, noodles and
dressings and we will be looking for good growth from Bisto, which is scheduled
to be back on TV in H2 with a new advertising campaign.
Culinary Brands' head office is scheduled for closure at the end of the year and
plans are progressing for the integration of the administrative centre. We are
pleased to have completed the integration of all commercial teams into Premier's
Grocery operations and as a consequence the Culinary Brands portfolio is now
represented by the Premier Grocery sales force and we expect to see both cost
and commercial benefits from this during the second half of the year.
The strong portfolio of brands in this division, such as Sharwood's, Bisto,
Robertson's, Frank Cooper and Paxo perfectly complement those already in the
Premier stable - Loyd Grossman, Oxo, Hartley's and Rose's. During the second
half, we will be focussing on how to optimise the positioning of these brands in
their categories to ensure we maximise the growth opportunities.
Cakes
£m 2007 2006
H1 H1
Reported
Sales 73.5 -
Trading profit 6.1 -
Pro forma
Sales 121.6 112.6 8.0%
Trading profit 7.8 7.6 2.6%
Pro forma results include 6 months trading of RHM in H1 2006 and 2007.
Pro forma sales for the Cakes segment increased by £9.0m to £121.6m. This
increase was due to increased market share with improved sales of branded and
own label cakes. Pro forma trading profit for the Cakes segment increased by
£0.2m to £7.8m, reflecting the increased sales, largely offset by higher
marketing expenditure.
We are anticipating that the current performance will continue into the
seasonally stronger second half of the year. We are pleased by the innovative
brand development processes that we have found in the Cakes division, as
exemplified by the relaunched Cadbury branded range of cakes. We have also
announced the exit from the Manor Bakeries van sales operation given the
uneconomic cost to serve this route to market. We anticipate that this may slow
sales growth in the second half but we do not expect any trading profit impact.
Integration of the Cakes business into the Premier business will commence in the
latter part of 2007.
Customer Partnerships
£m 2007 2006
H1 H1
Reported
Sales 60.2 -
Trading profit 6.4 -
Pro forma
Sales 103.4 96.3 7.4%
Trading profit 11.5 11.4 0.9%
Pro forma results include 6 months trading of RHM in H1 2006 and 2007 and
exclude the trading of RHM Frozen Foods, which has been classified within
discontinued operations.
Pro forma sales in our Customer Partnerships segment increased by £7.1m to
£103.4m, primarily reflecting the successful launch of new product lines. Pro
forma trading profit for the Customer Partnerships segment increased by £0.1m to
£11.5m reflecting the increased sales, partly offset by higher raw material
costs.
As part of our ongoing review of the Group's activities, we decided in June to
dispose of the RHM frozen foods business due to its poor competitive position.
This business manufactures primarily retailer label products in the frozen pies,
ready meals and desserts categories. We are pleased to have already concluded
the sale of certain assets of the ready meals division and hope to reach a rapid
conclusion on the disposal of the remaining parts of the business.
The RF Brookes, Charnwood and Avana cake businesses have been organised into a
single management structure. Avana cakes' results have been reported within the
Cakes division, in line with previous reporting.
Outlook
We have had a good start to trading for the second half where a combination of a
strong programme of new product launches, improved promotional strategies across
the enlarged Group and cooler weather has helped to drive sales growth. We
remain confident that we will deliver underlying sales growth for the year in
line with our 1.5-2% target. Wheat prices have seen an unprecedented level of
increase over the last few weeks and we are pleased to have been able to
implement price rises across our bread and flour products from the start of
September. However, if current wheat prices persist additional bread and flour
price increases will be required. Other raw material cost inflation is also
significant making price increases across many of our products necessary.
Whilst mindful of the turbulence that we have seen in the bread market over the
last few months, we anticipate that we will be able to meet our sales and
trading profit growth targets for the year.
The integration of RHM continues at pace and we are confident that we will
deliver the targeted cost synergies on schedule. During the second half, we will
complete the integration of the Culinary Brands business into Premier and
commence the integration of the Cakes business. We have started preparing our
manufacturing sites for the transfer of production from those sites, which are
scheduled to close during 2008 and 2009.
We will issue our first Interim Management Statement by mid November, which will
cover trading for the third quarter of 2007. This will provide us with an
opportunity to comment on trading from July to September, the impact of any
further changes to wheat prices and further progress on the integration of RHM.
Robert Schofield
Chief Executive
Financial review
The Group is presenting its interim results for the six months to 30 June 2007
with comparative information for the six months ended 1 July 2006. In the
current period, the presentation of these interim financial statements is
significantly different to that of the prior period, a reflection of the changes
in the commercial structure of the Group, the primary elements of which are set
out below. Accounting policies have been consistently applied in the interim
financial statements on the basis set out in Group's financial statements for
the year ended 31 December 2006 on pages 68 to 72.
Following the announcement on 4 December 2006, the Group acquired RHM plc ('RHM
') on 16 March 2007 for a consideration of £1,336.5m. The acquisition was
achieved under a scheme of arrangement resulting in the exchange of one new
ordinary Premier share and 83.2p in cash for each RHM share in issue. In
addition, on 19 January 2007, Premier acquired Chivers Ireland Limited ('Chivers
'), a leading supplier of preserves to Ireland's retail grocery and foodservice
markets and the distributor of Premier's brands in the Republic of Ireland,
under license, for £22.0m.
On 30 March 2007, the Group disposed of MBM Limited ('MBMG'), a supplier of
fresh produce, to Abbanoy Produce Holdings Limited and on 28 May 2007, the Group
disposed of Erin Foods Limited ('Erin'), a supplier of grocery products based in
Ireland, for a total consideration of £25.2m. The Group has also announced its
intention to dispose of its interest in RHM Frozen Foods, a supplier of frozen
pies, ready meals and desserts to the UK grocery business. On 21 August 2007,
certain assets of the Ready Meals division of RHM Frozen Foods were sold for
£1.1m.
In accordance with the requirements of IFRS 5, Non-current Assets Held for Sale
and Discontinued Operations, the results of MBMG and Erin are presented as
discontinued operations in both the current and the prior periods. The results
of RHM Frozen Foods are presented within discontinued operations for the current
period only, being the relevant period of ownership by the Group.
The acquisition of RHM has led to the addition of four new segments to the
Group's operations: Bread Bakeries, Culinary Brands, Cakes and Customer
Partnerships. The final segmental presentation of the enlarged Group is in the
process of being defined. However, at least until the end of the current
financial year, the former RHM divisions will continue to be reported as
segments. As a consequence of the disposal of MBMG, the Group no longer has a
Fresh Produce segment.
Income Statement - continuing operations
Sales and operating expenses
In the first half of 2007, sales from continuing operations increased by 145.3%
to £899.1m. The most significant components of this movement are the trading
results of the RHM divisions, which contributed £436.4m in the 15-week period
from 16 March 2007. Of this, 54.0% related to Bread Bakeries, 16.8% to Cakes,
15.4% to Culinary Brands and 13.8% to Customer Partnerships. In addition, the
Campbell's businesses contributed sales of £120.1m in the first half, of which
94.5% related to its UK operations.
Gross profit increased by 184.0% to £270.4m, largely as a result of
acquisitions. The Group's gross profit margin improved by 4.1% to 30.1% (2006:
26.0%). This improvement in margin is primarily a result of the inclusion of
the RHM and Campbell's businesses. Within RHM, the cost structure of Bread
Bakeries, in particular, results in a higher gross margin contribution which is
required to offset the additional distribution costs arising from daily
nationwide deliveries of bread and morning goods. Within Premier and
Campbell's, the movement away from certain own label contracts has also improved
overall gross margins.
Similarly, selling, marketing and distribution costs increased due to the
inclusion of the acquired businesses. These costs were £131.7m for the first
half of 2007, a fourfold increase compared with 2006. As a proportion of sales,
selling, marketing and distribution costs have increased to 14.6% from 8.7% in
2006, reflecting the higher distribution costs attributable to Bread Bakeries
within RHM, which are recovered by the related higher gross margins referred to
previously.
Administrative expenses increased from £20.4m to £86.2m. This increase reflects
the inclusion of the administrative costs for the acquired businesses but also
includes restructuring, redundancy and other costs associated with the
integration of Campbell's and RHM. Stripping out the impact of £31.1m of
exceptional administrative costs in the current period and a £1.3m credit in the
previous period, underlying administrative expenses have increased from £21.7m
to £55.1m, reflecting the impact of the two acquisitions. While significant
progress has been made in the integration of the administrative back office of
Campbell's, with approximately £2.0m of savings delivered in the first half, the
benefits from the RHM integration will only begin to flow in the second half.
Other operating expenditure of £0.3m includes a gain in the fair values of
unsettled forward foreign exchange contracts of £0.9m (2006: £1.9m loss), offset
by a loss on settled forward exchange contracts for the period of £1.2m (2006:
£0.6m gain).
Operating profit
Operating profit before exceptional items for the continuing business was £92.7m
for the first half of 2007, an increase of £51.6m, or 125.5%, compared to the
same period in 2006. The principal elements of this increase is the addition of
the RHM divisions, which contributed £32.1m since their acquisition. Of this,
28.4% related to Bread Bakeries, 19.3% to Cake, 30.8% to Culinary Brands and
21.5% to Customer Partnerships. The Campbell's business contributed to an
operating profit before exceptional items of £18.3m. Statutory operating profit
increased by 23.1% to £52.2m.
Exceptional items
While IFRS does not explicitly address exceptional items, the Group presents
separately certain items of sufficient financial significance in order to assist
in understanding of the financial performance achieved and in making projections
of future results. These items relate to events or circumstances that are
non-recurring in nature. Each of these items are set out in more detail in note
6.
Exceptional items for the period reflect the aggregate effect of a number of
such items, resulting in a net cost of £40.5m (2006: £1.3m credit). The
principal components of this exceptional cost include £24.4m of costs relating
to the integration of RHM and £7.7m of costs relating to the integration of
Campbell's. A further £7.3m was incurred in relation to restructuring and
commissioning costs of our new Meat-free production facility in Methwold.
Finance costs
On 16 March 2007, the Group re-financed its borrowing arrangements to fund the
acquisition of RHM. As a consequence, the Group's borrowings are provided by a
five-year term and revolving credit facility of £2.1bn, comprising fixed term
loans of £1.6bn and a revolving facility of £0.5bn. In addition, the Group has a
£100.0m acquisition facility. The term loans are repayable over a five-year
period, with the first payment due on 31 December 2007 and annually thereafter.
As a consequence of these new borrowing arrangements, in the first half, the
Group incurred higher cash interest charges and debt issuance amortisation
costs.
In aggregate, net finance costs for the period were £38.3m, compared with £14.8m
in 2006, an increase of £23.5m. Within this, net cash interest increased by
£22.4m, from £19.7m to £42.1m, due primarily to the acquisition funding cost.
The balance of the movement on finance costs reflects fair value of interest
rate swaps, the amortisation of debt issuance costs and the write-off of
un-amortised debt issuance costs of £3.6m in relation to pre-existing credit
facilities of Premier and £4.8m related to the RHM debt at acquisition, which
was repaid by Premier.
The term and revolving credit facilities mature in March 2012 and are subject to
a variable interest rate based on LIBOR plus a margin based on the leverage of
the business tested at six monthly intervals. This is currently set at 110 basis
points. In order to manage the Group's exposure to interest rate volatility, as
at 4 September 2007, the Group has fixed or capped a total of £1,617.4m of its
exposure to interest rate movements. Of this, £917.4m is swapped into fixed rate
instruments at an average interest rate of 4.6% plus the applicable margin, with
£717.4m of this total maturing between May 2008 and May 2010. The Group has
also put in place a collar structure on a further £700.0m of its borrowings.
This instrument, which matures in March 2012, caps our exposure on this £700.0m
at 6.2% plus the applicable margin. As a result, the Group had only £122.0m
(7.0%) of its aggregate net debt at fully floating rates.
As stated at the time of the adoption of IFRS, the Group has decided not to
adopt hedge accounting and so reflects the difference between the market value
of such instruments at the start and end of an accounting period in the income
statement.
Taxation
The taxation credit for the first half of 2007 is £8.0m (2006 £7.1m charge) and
consists of a tax charge on profit before tax of £3.5m offset by the release of
provisions of £7.3m for prior year liabilities following the resolution of
issues with HMRC and a credit of £4.2m resulting from the restatement of opening
and acquired net deferred tax liabilities arising from the reduction of the tax
rate to 28%. The tax charge of £3.5m on profit before tax is made up of a charge
of £15.4m on operating profit before exceptional items, resulting in an
effective tax rate of 28.4% on operating profit before exceptional items, and a
tax credit on allowable exceptional costs of £11.9m. The effective rate is
determined after taking account of items which are disallowable for tax purposes
but is lower than the standard rate of 30% due to movements in deferred tax
being calculated at 28% to reflect the reduction in the UK corporation tax rate
and the lower rate of tax applied to overseas profits.
Dividend
In line with our stated dividend policy, on 3 September 2007 we declared an
interim dividend of 4.30p per share, an increase of 8.9% on the equivalent
restated interim dividend for 2006, resulting in a total interim dividend of
£36.3m payable on 4 January 2008 to shareholders on the register of members at
23 November 2007. The shares will be marked ex-dividend on 21 November 2007.
Under IFRS, interim dividends are recorded in the period in which they are paid
and final dividends are recorded in the period in which they are approved.
Cash flow and borrowings
During the period, the net debt of the Group increased from £641.4m at 1 January
2007 to £1,739.4m at 30 June 2007, an increase of approximately £1.1bn. The bulk
of this movement relates to the cash acquisition cost of RHM and is made up of
the cost of the cash element paid for RHM shares of £289.8m and the debt
acquired of £793.5m.
Net cash generated from operations was £128.8m (2006: £75.9m), an increase
primarily attributable to the acquisition of RHM and improvements in, and the
timing of working capital flows. Aggregate cash interest paid of £41.6m (2006:
£18.6m) and tax receipts of £12.2m (2006: £5.0m paid), arising as a result of
the high level of prior year integration costs, resulted in the Group generating
an overall cash inflow from operating activities of £99.4m.
Net capital expenditure in the period was £45.8m (2006: £13.9m), again
reflecting the capital cash flows of RHM and Campbell's businesses post
acquisition. In the period, the Group paid dividends of £39.7m (2006: £nil),
including the first interim dividend for 2006 and a second interim dividend at
the announcement of the acquisition of RHM.
Pension schemes
Consistent with all public companies, the Group reviews actuarial assumptions
used in calculating its pension obligations on a regular basis. It is our
objective to ensure that the balance between the cash flow risk to the business
and our responsibilities to our current and former employees is fully and
regularly understood and that the impact of changes to the composition of the
business on our pension obligation is known in advance.
In this context, the Group monitors on a regular and ongoing basis the
scheme-specific demographic characteristics of members, along with the
assumptions relating to discount rates, returns on equity, inflation and
assumptions about the rate of future salary increases. As a result we have
revised the assumptions used in determining the IAS19 liabilities at 30 June
2007 to reflect changes in the circumstances. These assumptions are show in
detail in note 16 of the interim financial statements.
As a consequence, at 30 June 2007, and on an IAS19 basis, the Group's pension
schemes showed a net deficit of £89.1m (2006: £46.4m). This comprised £30.2m in
relation to the existing Premier schemes, £12.1m in relation to the schemes
associated with Campbell's and £46.8m in relation to the schemes associated with
RHM. The increase, which is due to the acquisition of schemes in the Campbell's
and RHM businesses, has been offset by an underlying reduction in the deficit on
these schemes due to the movement in market rates for bond yields at the
relevant dates.
Paul Thomas
Finance Director
Consolidated income statement (unaudited)
Half year Half year
ended ended Year ended
30 June 1 July 31 December
2007 2006 2006
Note £m £m £m
Continuing operations
Turnover 4 899.1 366.5 840.7
Cost of sales (628.7) (271.3) (596.7)
Gross profit 270.4 95.2 244.0
Selling, marketing and distribution costs (131.7) (32.0) (65.2)
Administrative costs (86.2) (20.4) (75.1)
Other operating expenditure 5 (0.3) (0.4) (3.2)
Operating profit 52.2 42.4 100.5
Before exceptional items 92.7 41.1 119.9
Exceptional items 6 (40.5) 1.3 (19.4)
Interest payable and other financial 7 (62.9) (23.2) (56.3)
charges
Interest receivable and financial income 7 24.6 8.4 14.8
Profit before taxation from continuing 13.9 27.6 59.0
operations
Taxation credit/(charge) 8 8.0 (7.1) (11.1)
Profit after taxation from continuing 21.9 20.5 47.9
operations
(Loss)/profit from discontinued operations 13 (19.4) 0.1 (0.8)
Profit for the period 2.5 20.6 47.1
Earnings per share (pence) 9
Basic 0.4 6.6 12.7
Diluted 0.4 6.6 12.7
Basic - continuing 3.1 6.6 12.9
Diluted 3.1 6.6 12.9
Basic - discontinued (2.7) 0.0 (0.2)
Diluted (2.7) 0.0 (0.2)
Dividends 10
Final dividend (£m) - - 12.6
Declared interim dividend (£m) 36.3 12.4 39.7
Final dividend (pence) - - 2.55
Declared interim dividend (pence) 4.30 3.95 9.45
Comparatives have been restated to reflect the disposal of the Fresh produce
business on 30 March 2007 and Erin Foods Limited on 28 May 2007.
Earnings per share and dividend comparatives have been restated to reflect the
impact of the rights issue in August 2006.
Consolidated balance sheet (unaudited)
As at 30 As at 1 As at 31
June July December
2007 2006 2006
Note £m £m £m
ASSETS:
Non-current assets
Property, plant and equipment 657.4 198.3 254.7
Goodwill 12 1,994.0 259.2 477.0
Other intangible assets 12 712.5 166.1 389.6
Investments - 0.1 -
Retirement benefit assets and other receivables 5.6 0.3 -
Current assets
Inventories 201.8 83.1 120.6
Trade and other receivables 348.9 102.5 170.6
Financial assets - derivatives 26.8 5.8 6.9
Cash and cash equivalents 53.9 28.8 7.8
Assets classified as held for sale 11 16.9 - -
Total assets 4,017.8 844.2 1,427.2
LIABILITIES:
Current liabilities
Trade and other payables (399.9) (147.5) (177.9)
Dividends payable (21.5) (23.5) -
Financial liabilities
- short term borrowings (83.7) (24.3) (131.5)
- loan notes - (3.3) -
- derivatives (2.8) (2.5) (3.5)
Interest payable (3.8) (2.1) (3.7)
Provisions (28.8) (1.6) (7.7)
Current tax liabilities (3.1) (19.6) (6.9)
Liabilities classified as held for sale 11 (4.8) - -
Non-current liabilities
Financial liabilities - long-term borrowings (1,709.6) (536.1) (517.7)
Retirement benefit obligations 16 (90.7) (46.4) (84.7)
Provisions (12.5) (0.4) (0.5)
Other liabilities (3.4) (0.1) -
Deferred tax liabilities (113.5) (31.7) (32.1)
Total liabilities (2,478.1) (839.1) (966.2)
Net assets 1,539.7 5.1 461.0
EQUITY:
Capital and reserves
Share capital 8.4 2.5 5.0
Share premium 1,785.9 321.5 760.6
Merger reserve (136.8) (136.8) (136.8)
Profit and loss reserve (117.9) (182.1) (167.8)
Capital and reserves attributable to the Company's 1,539.6 5.1 461.0
equity Shareholders
Minority interest 0.1 - -
Total equity 1,539.7 5.1 461.0
Consolidated cash flow statement (unaudited)
Half year Half year
ended ended Year ended
30 June 1 July 31 December
2007 2006 2006
Note £m £m £m
Net cash generated from operating activities 14 128.8 75.9 91.9
Interest paid (52.8) (22.5) (49.2)
Interest received 11.2 3.9 9.7
Taxation received/(paid) 12.2 (5.0) (12.3)
Cash inflow from operating activities 99.4 52.3 40.1
Acquisition of RHM 12 (303.2) - -
Acquisition of Chivers Ireland 12 (21.2) - -
Acquisition of Campbell's 12 (0.3) - (380.3)
Sale of subsidiaries/businesses 15 17.0 - -
Purchase of property, plant and equipment (37.9) (12.8) (44.7)
Purchase of intangible assets (8.0) (5.3) (12.3)
Sale of property, plant and equipment 0.1 4.2 4.5
Cash outflow from investing activities (353.5) (13.9) (432.8)
Repayment of borrowings 14 (751.3) (22.8) (29.1)
Proceeds from new borrowings 14 1,901.5 - 86.0
Proceeds from share issue - - 458.6
Share issue costs (2.1) - (17.0)
Debt issuance costs (18.1) - (4.4)
Repayment of debt and interest acquired with (793.5) - -
RHM
Repayment of debt acquired with Campbell's - - (88.6)
Dividends paid (39.7) - (23.5)
Cash inflow/(outflow) from financing 296.8 (22.8) 382.0
activities
Net inflow/(outflow) of cash and cash 42.7 15.6 (10.7)
equivalents
Cash and cash equivalents at beginning of 2.5 13.2 13.2
period
Cash and cash equivalents at end of period 14 45.2 28.8 2.5
Note: Acquisition cash flows are stated net of cash acquired.
Consolidated statement of recognised income and expense (unaudited)
Half year Half year
ended ended Year ended
30 June 1 July 31 December
2007 2006 2006
Note £m £m £m
Profit for the period 2.5 20.6 47.1
Actuarial gains and losses 148.3 35.9 16.1
Deferred tax on actuarial gains and losses (42.2) (11.0) (5.1)
Deferred tax on share options 1.2 - 1.5
Net gain not recognised in income statement 107.3 24.9 12.5
Total recognised income in the period 109.8 45.5 59.6
Notes to the Financial Information (unaudited)
1. General information
Premier Foods plc (the Company) is a public limited company incorporated in the
United Kingdom under the Companies Act 1985. The address of the registered
office and principal place of business is Premier House, Centrium Business Park,
Griffiths Way, St Albans, Hertfordshire AL1 2RE. The principal activity of the
Company and its subsidiaries (the Group) is the supply of branded and own label
food and beverage products as described in note 16 of the Group's annual report
and accounts for the year ended 31 December 2006.
2. Accounting policy
Basis of preparation
This financial information comprises the consolidated balance sheet as at 30
June 2007 and related consolidated income statement, consolidated condensed
statement of cash flows, statement of recognised income and expense and
supporting notes for the period then ended of Premier Foods plc (hereinafter
referred to as 'financial information').
This financial information has been prepared in accordance with the Listing
Rules of the Financial Services Authority and on the basis of the accounting
policies set out in the Group's 2006 annual report which were prepared in
accordance with IFRS as adopted by European Union. The results of operations
for the half year periods are not necessarily indicative of the results to be
expected for the full year.
The consolidated interim financial information does not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985. These
interim results are unaudited but have been reviewed by our auditors. The
statutory accounts for the year ended 31 December 2006, which are prepared under
IFRS, have been reported on by the Group's auditors and delivered to the
registrar of companies. The report of the auditors was unqualified and did not
contain statements under section 237(2) or (3) of the Companies Act 1985. These
sections address whether proper accounting records have been kept, whether the
Company's statutory accounts are in agreement with those records and whether the
auditors have obtained all the information and explanations necessary for the
purposes of their audit.
Basis of consolidation
The consolidated interim financial statements include the financial statements
of Premier Foods plc and entities controlled by the Company (its subsidiaries)
up to 30 June 2007. Control is achieved where the Company has the power to
govern the financial and operating policies of an investee entity so as to
obtain benefits from its activities.
On acquisition, the assets, liabilities and contingent assets and liabilities of
a subsidiary are measured at their fair values at the date of acquisition. Any
excess of the cost of acquisition over the fair values of the identifiable net
assets acquired is recorded as goodwill.
The results of subsidiaries acquired or disposed of during the period are
included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used by
the Group. All inter-group transactions, balances, income and expenses are
eliminated on consolidation.
3. Critical accounting estimates and judgements
The following are areas of particular significance to the Group's interim
financial statements and include the application of judgement, which is
fundamental to the completion of a set of financial statements.
Pensions
The present value of the Group's pension obligations depends on a number of
actuarial assumptions. The primary assumptions used include the expected
long-term rate of return on invested funds, the discount rate applicable to
scheme liabilities, the long-term rate of inflation and estimates of the
mortality applicable to scheme members.
At each reporting date, and on a continuous basis, the Group reviews the
macro-economic and company specific factors influencing each of these
assumptions, using professional advice, in order to record the Group's ongoing
commitment and obligation to defined benefit schemes in accordance with IFRS.
Based upon the assumptions regarded as appropriate as at 30 June 2007, the
aggregate net deficit on the Group's pension schemes was £89.1m (1 July 2006:
£46.4m). The increase, which is due to the acquisition of schemes in the
Campbell's and RHM businesses, has been offset by an underlying reduction in the
deficit on these schemes due to the movement in market rates for bond yields at
the relevant dates.
The Group is aware of, and alert to, the need to inform the Pensions Regulator
to the extent that the Group is involved in any corporate activity that affects
the rights of pension scheme members and the carrying value of the pension
schemes.
Goodwill and other intangible assets
Impairment reviews in respect of goodwill are performed annually unless an event
indicates that an impairment review is necessary immediately. Impairment reviews
in respect of intangible assets are performed when an event indicates that an
impairment review is necessary. Examples of such triggering events include a
significant planned restructuring, a major change in market conditions or
technology, expectations of future operating losses, or a significant reduction
in cash flows. The recoverable amounts of cash-generating units are determined
based on the higher of realisable value and value-in-use calculations. These
calculations require the use of estimates.
Acquired trademarks, brands, recipes and similar assets are considered to have
finite lives that range from 20 to 40 years. The determination of these useful
lives takes into account certain quantitative factors such as sales expectations
and growth prospects, and also many qualitative factors such as history and
heritage, and market positioning, hence the determination of useful lives is
subject to estimates and judgement.
Advertising and promotion costs
Trade spend and promotional activity is dependent on market conditions and
negotiations with customers. Trade spend is charged to the income statement
according to the substance of the agreements with customers and the terms of any
contractual relationship. Promotional support is generally charged to the
income statement at the time of the relevant promotion. These costs may be
accrued based on best estimates. The actual costs may not be known until
subsequent years when negotiations with customers are concluded. Such
adjustments are recognised in the year when final agreement is reached.
Expenditure on advertising is charged to the income statement when incurred,
except where a particular campaign is used more than once. In this case it is
charged in line with the airtime profile.
Exceptional items
Exceptional items are not explicitly addressed under IFRS. Accordingly, the
Group has defined exceptional items as those items of sufficient financial
significance to be disclosed separately in order to assist in understanding the
financial performance achieved and in making projections of future results. Each
of these items relate to events or circumstances that are non-recurring in
nature, such as a major restructuring or integration of an acquisition.
4. Segmental analysis
The results below for all periods are divided into continuing and discontinued
operations. Following the acquisition of RHM, and the disposal of the Fresh
Produce business, the Group, for at least the remainder of the current year,
will continue to report upon five continuing segments within the business:
Grocery, and the segments which RHM used to report under, which comprise Bread
Bakeries, Cakes, Customer Partnerships and Culinary Brands.
These segments are the basis on which the Group reports its primary segment
information. Inter-segment transfers or transactions are entered into under the
same terms and conditions that would be available to unrelated third parties.
Comparative period results for the Fresh Produce segment, which was disposed of
on 30 March 2007, are presented as discontinued operations.
The segment results for the half years ended 30 June 2007 and 1 July 2006, and
for the year ended 31 December 2006 are as follows:
Segmental analysis - primary
Half year ended 30 June 2007
Grocery Bread Culinary Cakes Customer Unallocated Total for
Bakeries Brands Partnerships Group
£m £m £m £m £m £m £m
Turnover
Total turnover from 462.7 235.5 67.2 73.5 60.2 - 899.1
continuing operations
Result
Operating profit before 60.6 9.1 9.9 6.2 6.9 - 92.7
exceptional items
Exceptional items (16.6) (5.2) (14.4) (2.2) (2.1) - (40.5)
Interest payable and - - - - - (62.9) (62.9)
other financial charges
Interest receivable - - - - - 24.6 24.6
Profit/(loss) before 44.0 3.9 (4.5) 4.0 4.8 (38.3) 13.9
taxation for continuing
operations
Taxation - - - - - 8.0 8.0
Profit/(loss) after 44.0 3.9 (4.5) 4.0 4.8 (30.3) 21.9
taxation for continuing
operations
Discontinued operations - - - - - (19.4) (19.4)
Profit/(loss) for the 44.0 3.9 (4.5) 4.0 4.8 (49.7) 2.5
period
Half year ended 1 July 2006
Grocery Bread Culinary Cakes Customer Unallocated Total for
Bakeries Brands Partnerships Group
£m £m £m £m £m £m £m
Turnover
Total turnover from 366.5 - - - - - 366.5
continuing operations
Result
Operating profit before 41.1 - - - - - 41.1
exceptional items
Exceptional items 1.3 - - - - - 1.3
Interest payable and (23.2) (23.2)
other financial charges
- - - - -
Interest receivable - - - - - 8.4 8.4
Profit/(loss) before 42.4 - - - - (14.8) 27.6
taxation for continuing
operations
Taxation - - - - - (7.1) (7.1)
Profit/(loss) after
taxation for continuing
operations 42.4 - - - - (21.9) 20.5
Discontinued operations - - - - - 0.1 0.1
Profit/(loss) for the 42.4 - - - - (21.8) 20.6
period
Year ended 31 December 2006
Grocery Bread Culinary Cakes Customer Unallocated Total for
Bakeries Brands Partnerships Group
£m £m £m £m £m £m £m
Turnover
Total turnover from 840.7 - - - - - 840.7
continuing operations
Result
Operating profit before 119.9 - - - - - 119.9
exceptional items
Exceptional items (19.4) - - - - - (19.4)
Interest payable and - - - - - (56.3) (56.3)
other financial charges
Interest receivable - - - - - 14.8 14.8
Profit/(loss) before 100.5 - - - - (41.5) 59.0
taxation for continuing
operations
Taxation - - - - - (11.1) (11.1)
Profit/(loss) after
taxation for continuing
operations 100.5 - - - - (52.6) 47.9
Discontinued operations - - - - - (0.8) (0.8)
Profit/(loss) for the 100.5 - - - - (53.4) 47.1
year
Segmental analysis - secondary
The Group primarily supplies the United Kingdom market, although we also supply
certain products to mainland Europe and a number of other countries including
the United States. These segments are the basis on which the Group reports its
secondary segment information. The following table provides an analysis of the
Group's turnover, which is allocated on the basis of geographical market
destination.
Continuing operations - turnover
Half year ended Year ended
30 June 1 July 31 December
2007 2006 2006
£m £m £m
United Kingdom 855.2 343.1 786.3
Mainland Europe 34.5 17.2 45.3
Other countries 9.4 6.2 9.1
Total turnover 899.1 366.5 840.7
5. Other operating expenditure
Half year ended Year ended
30 June 1 July 31 December
2007 2006 2006
£m £m £m
(Gain)/loss on mark-to-market valuation of foreign exchange (0.9) 1.9 3.3
contracts
Loss/(gain) on settled foreign exchange contracts 1.2 (0.6) 0.8
Business interruption income relating to Bury Fire - (0.9) (0.9)
Net expenditure 0.3 0.4 3.2
6. Exceptional items
The Group defines exceptional items as those items of sufficient financial
significance to be disclosed separately in order to assist in understanding the
financial performance achieved and in making projections of future results. In
the current period, the Group incurred the following:
Half year ended Year ended
30 June 1 July 31 December
2007 2006 2006
£m £m £m
Integration of RHM (a) 24.4 - -
Integration of Campbell's (b) 7.7 - 8.0
Restructure of Meat-free production (c) 7.3 - 7.2
Costs of aborted acquisition of United Biscuits (d) 0.1 - 4.5
Restructuring and other costs (e) 1.0 0.9 1.9
Property disposal (f) - (3.1) (3.1)
Bird's transitional manufacturing and integration costs (g) - 0.9 0.9
Total exceptional costs/(income) 40.5 (1.3) 19.4
(a) Integration of RHM
On 16 March 2007 the Group acquired RHM plc. The administrative functions at
RHM's head office and Culinary Brands sites at Addlestone and Middlewich are
being integrated into the existing Grocery operations of the Group, resulting in
the impairment of certain assets, redundancy and restructuring costs.
(b) Integration of Campbell's
On 14 August 2006 the Group acquired Campbell's Grocery Products Limited and
Campbell's Ireland Grocery Products Limited. The administrative functions at
Cambourne and Kings Lynn, as well as the manufacturing operations of Kings Lynn,
are being integrated into the existing Grocery operations of the Group,
resulting in the impairment of certain assets, redundancy and restructuring
costs.
(c) Restructure of Meat-free production
During 2005 the Group acquired Marlow Foods Holdings Limited and Cauldron Foods
Limited. During 2006 the Group announced plans for the closure of the Cauldron
factory at Portishead and the purchase and development of a new chilled facility
at Methwold, enabling the integration of chilled production for Quorn and
Cauldron products. Start up and commissioning of the new plant has continued
over the first half and as a result £7.3m of one-off restructuring costs have
been incurred in the period.
(d) Costs of aborted acquisition of United Biscuits
In the previous year the Group entered into negotiations to acquire United
Biscuits. In doing so significant costs were incurred including, inter alia,
consultancy, banking, due diligence, and legal fees, before discussions with the
Group were terminated.
(e) Restructuring and other costs
There are a variety of other exceptional costs including redundancy costs
relating to business re-organisations, training costs associated with the
implementation of a new ERP software suite, costs associated with the
restructuring of our warehousing network, and costs relating to the government's
'clean labelling' regime.
Prior year exceptional charges relate to costs associated with the restructuring
of our warehousing network, costs relating to the 'clean labelling' regime, and
raw material write-offs resulting from their contamination in a third party
warehouse.
(f) Property disposal
Disposal gains of £3.1m in 2006 relate to the disposal of our North Walsham
factory which had previously been used for seasonal stock holding, and also an
additional receipt relating to the sale of Langley Mill resulting from
provisions in the disposal contract whereby the Group was entitled to a share of
any profit made by the buyer on the subsequent sale of the property.
(g) Bird's transitional manufacturing and integration costs
Following the acquisition of the Bird's business from Kraft Foods Inc. the
product range continued to be produced by Kraft's at their factory in Banbury
under a series of transitional arrangements. In the previous year these
arrangements were extended to ensure the continuity of supply and we have
presented the additional cost of sourcing production from Kraft as exceptional
costs.
7. Interest payable
Half year ended Year ended
30 June 1 July 31 December
2007 2006 2006
£m £m £m
Interest payable on bank loans, senior notes and overdrafts 7.6 4.6 10.9
Interest payable on bridging loan facility - - 1.6
Interest payable on term facility 30.4 9.3 19.4
Interest payable on revolver facility 14.9 8.7 19.0
Amortisation of debt issuance costs 1.6 0.6 1.4
54.5 23.2 52.3
Accelerated amortisation of debt issuance costs 8.4 - 4.0
Total interest payable and other financial charges 62.9 23.2 56.3
Fair valuation of interest rate swaps (13.8) (5.5) (7.1)
Interest receivable - bank deposits (10.8) (2.9) (7.7)
Total interest receivable and other financial income (24.6) (8.4) (14.8)
Net interest payable 38.3 14.8 41.5
8. Tax on profit on ordinary activities
A number of changes to the UK Corporation tax system were announced in the March
2007 Budget Statement. Some of them have been substantively enacted in the 2007
Finance Act, including the reduction from April 2008 of the corporate tax rate
to 28%, whilst others will be enacted in the 2008 Finance Act. The changes in
the 2008 Finance Act have not been substantively enacted at the balance sheet
date and, therefore, are not included in these financial statements.
The effect of the changes to be enacted in the Finance Act 2008 would be to
increase the deferred tax liability provided at 30 June 2007 by £29.4m in 2008
and decrease the after tax profit for the year by the same amount. This increase
in deferred tax is due to the phasing out of industrial buildings allowances
from 2008 onwards.
The taxation credit for the first half of 2007 is £8.0m (2006 £7.1m charge) and
consists of a tax charge on profit before tax of £3.5m offset by the release of
provisions of £7.3m for prior year liabilities following the resolution of
issues with HMRC and a credit of £4.2m resulting from the restatement of opening
and acquired net deferred tax liabilities arising from the reduction of the tax
rate to 28%. The tax charge of £3.5m on profit before tax is made up of a charge
of £15.4m on operating profit before exceptional items, resulting in an
effective tax rate of 28.4% on operating profit before exceptional items, and a
tax credit on allowable exceptional costs of £11.9m. The effective rate is
determined after taking account of items which are disallowable for tax purposes
but is lower than the standard rate of 30% due to movements in deferred tax
being calculated at 28% to reflect the reduction in the UK corporation tax rate
and the lower rate of tax applied to overseas profits.
9. Earnings per share
Basic earnings per share have been calculated by dividing earnings from
continuing operations attributable to ordinary shareholders of £21.9m (2006:
£20.5m) by the weighted average number of ordinary shares of the Company in
issue during that period.
Half year ended Half year ended Year ended
30 June 2007 1 July 2006 31 December 2006
(restated) (restated)
Dilutive Dilutive Dilutive
effect effect effect of
of share of share share
Basic options Diluted Basic options Diluted Basic options Diluted
EPS EPS EPS EPS EPS EPS
Continuing operations
Profit after tax (£m) 21.9 - 21.9 20.5 - 20.5 47.9 - 47.9
Weighted average number of
shares (million) 699.7 1.6 701.3 314.1 0.2 314.3 370.8 0.6 371.4
Earnings per share (pence) 3.1 - 3.1 6.6 - 6.6 12.9 - 12.9
Discontinued operations
Profit after tax (£m) (19.4) - (19.4) 0.1 - 0.1 (0.8) - (0.8)
Weighted average number of
shares (million) 699.7 1.6 701.3 314.1 0.2 314.3 370.8 0.6 371.4
Earnings per share (pence) (2.7) - (2.7) 0.0 - 0.0 (0.2) - (0.2)
Total
Profit after tax (£m) 2.5 - 2.5 20.6 - 20.6 47.1 - 47.1
Weighted average number of
shares (million) 699.7 1.6 701.3 314.1 0.2 314.3 370.8 0.6 371.4
Earnings per share (pence) 0.4 - 0.4 6.6 - 6.6 12.7 - 12.7
Comparatives have been restated to reflect the disposal of the Fresh produce
business on 30 March 2007 and Erin Foods Limited on 28 May 2007.
The 2006 half year comparatives have been restated to reflect the impact of the
rights issue in the previous year.
10. Dividends
The Board proposes an interim dividend of 4.30 pence per ordinary share payable
on 4 January 2008 to shareholders on the Register of Members as at 23 November
2007. Final dividends are recognised in the period in which they are approved
and an interim dividend is recognised in the period in which it is paid. The
final dividend for 2006 of 2.55 pence per ordinary share was approved in the
period and was paid on 6 July 2007.
11. Assets held for sale
The Group has announced that the RHM Frozen Foods business is to be sold. Assets
and liabilities relating to RHM Frozen Foods have been reclassified as held for
sale in the balance sheet. RHM Frozen Food's assets and liabilities were
remeasured according to IFRS principles at the date of held for sale
classification and as a result the carrying amounts of non-current assets were
written down to their fair values. Accordingly, the results of RHM Frozen Foods
have been classified as discontinued operations (refer note 13).
Subsequent to 30 June 2007 the Group sold the Ready Meals division of RHM Frozen
Foods (refer note 17).
12. Acquisition of RHM, Chivers Ireland and Campbell's
RHM plc
On 16 March 2007 the Group completed the acquisition of 100% of RHM plc ('RHM')
for a total net consideration of £1,336.5m. The consideration for the
acquisition was one new ordinary Premier share and 83.2p in cash for each RHM
share held. RHM contributed sales of £436.4m to the Group and an operating
profit before exceptionals from continuing operations of £32.1m for the period
from acquisition to 30 June 2007. If the acquisition had occurred on 1 January
2007, then RHM would have contributed a further £306.5m to the Group's sales and
a further £22.6m to the Group's operating profit before exceptionals from
continuing operations.
In accordance with International Financial Reporting Standard 3, Business
Combinations, the initial accounting for the business combination has been
determined provisionally. A full review is being undertaken to determine fair
values. The only fair value adjustment is the initial recognition of deferred
tax on the brands acquired. The goodwill arising on acquisition is stated on a
provisional basis and will change on the completion of our fair value review.
The provisional fair values and book values of assets and liabilities acquired
are as follows:
RHM plc RHM
Provisional Book value
fair value
£m £m
Property, plant and equipment 422.0 422.0
Intangible assets 328.8 328.8
Inventories 88.9 88.9
Trade and other receivables 275.1 275.1
Other investments 0.6 0.6
Deferred tax (liability)/asset (28.2) 70.4
Bank overdraft (0.7) (0.7)
Trade and other payables (298.5) (298.5)
Financial liabilities - borrowings and other loans (780.5) (780.5)
Retirement benefit obligations (177.5) (177.5)
Current tax liabilities (1.9) (1.9)
Net liabilities acquired (171.9) (73.3)
Purchase price RHM
£m
One new Premier share for each RHM share 1,031.9
Cash consideration for each RHM share 289.8
Debt and interest acquired 793.5
Purchase price 2,115.2
- Less debt acquired (793.5)
- Direct costs relating to the acquisition 14.8
Purchase consideration 1,336.5
Bank overdraft in subsidiaries acquired 0.7
Total purchase consideration 1,337.2
Provisional fair value of net liabilities acquired 171.9
Goodwill 1,509.1
Chivers Ireland
On 19 January 2007 the Group completed the acquisition of 100% of Chivers
Ireland and associated brands (collectively 'Chivers Ireland') for a total
consideration of £22.0m, inclusive of deferred consideration and £0.2m of
acquisition related costs. The provisional fair value of the net assets acquired
was £15.0m, resulting in goodwill of £7.0m. Chivers contributed sales of £9.1m
to the Group and an operating profit before exceptionals from continuing
operations of £nil for the period from acquisition to 30 June 2007. If the
acquisition had occurred on 1 January 2007, then Chivers would have contributed
a further £1.1m to the Group's sales and a further £0.1m to the Group's
operating profit before exceptionals from continuing operations.
Campbell's
Subsequent to the year ended 31 December 2006, the Group has completed the
exercise of attributing fair values to the assets and liabilities acquired with
the Campbell's business. As a result, fair value adjustments have been made in
relation to property, plant and equipment and trade and other payables. In
addition a further £0.3m of acquisition related costs have been incurred,
resulting in an increase of goodwill of £3.2m.
The final fair value and provisional fair value of assets and liabilities
acquired are as follows:
Campbell's
Provisional Final fair
fair value value
£m £m
Property, plant and equipment 39.5 39.4
Intangible assets 223.4 223.4
Inventories 28.6 28.6
Trade and other receivables 30.1 30.1
Cash and bank deposits 2.5 2.5
Deferred tax asset 2.5 2.5
Trade and other payables (40.1) (42.9)
Financial liabilities - long term borrowings (88.6) (88.6)
Retirement benefit obligations (25.5) (25.5)
Current tax liabilities (0.5) (0.5)
Net assets acquired 171.9 169.0
Purchase price Campbell's
£m
Purchase price 460.0
- Less debt acquired (88.6)
- Direct costs relating to the acquisition 9.2
Purchase consideration settled in cash 380.6
Cash and cash equivalents in subsidiaries acquired 2.5
Deferred consideration 7.0
Total purchase consideration 390.1
Fair value of net assets acquired (169.0)
Goodwill 221.1
13. Discontinued operations
On 30 March 2007 the Group disposed of its Fresh Produce businesses and on 28
May 2007 the Erin Foods Limited business in Ireland. Additionally, the Group
announced that the RHM Frozen Foods business was to be sold. The results of the
discontinued operations for the period to the dates of disposal were as follows:
30 June 1 July 31 December
2007 2006 2006
£m £m £m
Turnover 45.8 64.0 118.7
Expenses (52.6) (63.7) (119.6)
(Loss)/profit before tax (6.8) 0.3 (0.9)
Taxation credit/(charge) 2.0 (0.2) 0.1
(Loss)/profit after tax on discontinued operations for (4.8) 0.1 (0.8)
the period
Loss on disposal before tax (14.6) - -
Tax on loss on disposal - - -
Loss on disposal after taxation (14.6) - -
Total (loss)/profit arising from discontinued (19.4) 0.1 (0.8)
operations
A net cash inflow of £17.0m (2006: £nil) arose on the disposal of discontinued
businesses and during the period discontinued businesses contributed a net
outflow of £1.2m (2006: £2.7m net inflow) to the Group's net operating cash
flows, paid £nil (2006: £1.0m) in respect of investing activities and paid £nil
(2006: £nil) in respect of financing activities.
The carrying amounts of the assets and liabilities at the dates of disposals are
disclosed in note 15.
14. Reconciliation of operating profit to cash generated from operating
activities
Half year ended Year ended
30 June 1 July 31 December 2006
2007 2006
£m £m £m
Continuing operations
Operating profit 52.2 42.4 100.5
Depreciation of property, plant and equipment 25.5 8.6 18.0
Amortisation of intangible assets 12.5 4.2 10.9
Amortisation of debenture stock - - 0.1
Impairment/(gain on disposal) of property, plant and equipment 4.8 (2.7) 1.3
Impairment of intangible assets - - 0.1
Revaluation (gains)/losses on financial instruments (0.9) 2.2 3.8
Share based payments 2.1 0.3 1.6
Net cash inflow from operating activities before interest, tax 96.2 55.0 136.3
(paid)/received and movements in working capital
Decrease/(increase) in inventories 0.3 4.0 (1.0)
Decrease in receivables 73.8 40.1 2.4
Decrease in other payables and provisions (13.1) (22.5) (27.3)
Movement in net retirement benefit obligations (26.8) (2.4) (9.1)
Cash generated from continuing operations 130.4 74.2 101.3
Discontinued operations (1.6) 1.7 (9.4)
Cash generated from operations 128.8 75.9 91.9
Exceptional items cash flow (33.7) 1.6 (9.2)
Cash generated from operations before exceptional items 162.5 74.3 101.1
Additional analysis of cash flows
Half year ended Year ended
30 June 1 July 31 December
2007 2006 2006
£m £m £m
Interest received 11.2 3.9 9.7
Interest paid (52.8) (22.5) (49.2)
Issue costs of new bank loan (18.1) - (4.4)
Return on financing (59.7) (18.6) (43.9)
Sale of subsidiaries/businesses 17.0 - -
Sale of subsidiaries/businesses 17.0 - -
Reconciliation of cash and cash equivalents to net borrowings
Half year ended Year ended
30 June 1 July 31 December
2007 2006 2006
£m £m £m
Net inflow/(outflow) of cash and cash equivalents 42.7 15.6 (10.7)
Debt acquired with RHM (0.5) - -
Unamortised debt issuance acquired with RHM 4.8 - -
Debt acquired with Campbells - - (88.6)
(Increase)/decrease in borrowings (1,135.0) 22.8 36.1
Other non-cash changes (10.0) (1.2) (6.1)
(Increase)/decrease in borrowings net of cash (1,098.0) 37.2 (69.3)
Total borrowings net of cash at beginning of period (641.4) (572.1) (572.1)
Total borrowings net of cash at end of period (1,739.4) (534.9) (641.4)
Analysis of movement in borrowings
As at Other non As at
1 January cash 30 June
2007 Cashflow changes 2007
£m £m £m £m
Short term borrowings (5.3) (3.4) - (8.7)
Cash and bank deposits 7.8 46.1 - 53.9
Cash and cash equivalents net of borrowings 2.5 42.7 - 45.2
Borrowings - term (300.0) (1,199.8) - (1,499.8)
Borrowings - revolver (346.0) 49.6 - (296.4)
Finance leases (1.6) - (2.9) (4.5)
Other (0.1) (0.5) - (0.6)
Borrowings (645.2) (1,108.0) (2.9) (1,756.1)
Debt issuance costs 3.8 22.9 (10.0) 16.7
Total net borrowings (641.4) (1,085.1) (12.9) (1,739.4)
15. Disposal of subsidiaries/businesses
As referred to in note 13, the Group disposed of both its Fresh Produce
businesses and the Erin Foods business during the period. The impact on the
results of the Group is disclosed in note 13. On the dates of disposal, the net
assets of the businesses were as follows:
£m
Property, plant and equipment 16.5
Intangible assets and goodwill 3.9
Inventories 6.2
Trade and other receivables 20.6
Cash and bank deposits 1.5
Trade and other payables (12.4)
Deferred tax liabilities (1.1)
Net assets disposed of 35.2
Net consideration (20.6)
Loss on disposal (14.6)
Net cash inflow arising on
disposal:
Initial consideration 25.2
Deferred loan notes consideration (5.1)
Disposal costs (1.6)
18.5
Cash and cash equivalents in business disposed of (1.5)
Net cash inflow for the period 17.0
The determination of the Erin Foods Limited consideration includes a provision
for contract manufacturing losses of £0.4m.
16. Retirement benefit schemes
Most Group companies participate in the Premier Foods Pension Scheme, the
principal funded defined benefit scheme operated by the Group. The Group also
operates a smaller funded defined benefit scheme, the Premier Ambient Products
Pension Scheme for employees in the Ambrosia business. Under the schemes,
employees are entitled to retirement benefits which vary as a percentage of
final salary on retirement. No unfunded post-retirement benefits exist.
On 14 August 2006 the Group inherited two further funded defined benefit pension
schemes as a result of the acquisition of Campbell's, the Premier Grocery
Products Pension Scheme for the UK business, and the Premier Grocery Products
Ireland Pension Scheme for the Irish business.
On 16 March 2007 the Group inherited four further funded defined benefit pension
schemes as a result of the acquisition of RHM.
The assets of all schemes are held by the trustees of the respective schemes and
are independent of the Group's finances. The schemes invest through investment
managers appointed by the trustees in UK and European equities and in investment
products comprising a broader range of assets.
The plan assets do not include any of the Group's own financial instruments, nor
any property occupied by, or other assets used by, the Group.
At the balance sheet date, the combined principal actuarial assumptions used for
all the schemes as follows:
30 June 1 July 31 December
2007 2006 2006
% % %
Discount rate 5.80 5.50 5.20
Inflation 3.20 2.75 3.00
Expected salary increases 3.40 3.75 4.00
Future pension increases 2.60 2.75 3.00
The mortality assumptions used in the Group's actuarial valuations at 30 June
2007 were consistent with those used as at 31 December 2006 as described in the
Group's 2006 Annual Report.
The amounts recognised in the balance sheet arising from the Group's obligations
in respect of its defined benefit schemes is as follows:
30 June 1 July 2006 31 December
2007 2006
£m £m £m
Present value of funded obligations (2,576.0) (384.6) (550.4)
Fair value of plans' assets 2,486.9 338.2 465.7
Net deficit in schemes (89.1) (46.4) (84.7)
Included in the net deficit in schemes above is a net surplus of 2 schemes of
£1.6m.
30 June
2007
£m
Opening defined benefit obligation at 1 January 2007 (550.4)
Acquisition of subsidiary undertakings (2,186.7)
Current service cost (7.8)
Past service cost (0.8)
Interest cost (47.3)
Actuarial gain 177.8
Curtailments 0.2
Contributions by plan participants (6.1)
Benefits paid 45.1
Closing defined benefit obligation (2,576.0)
Changes in the fair value of plan assets were as follows:
30 June
2007
£m
Opening fair value of plan assets at 1 January 2007 465.7
Acquisition of subsidiary undertakings 2,007.2
Expected return 54.8
Administrative and life insurance costs (0.9)
Actuarial losses (29.5)
Contributions by employer 28.6
Contributions by plan participants 6.1
Benefits paid (45.1)
Closing fair value of plan assets 2,486.9
The amounts recognised in the income statement are as follows:
Half year ended Year ended
30 June 1 July 31 December
2007 2006 2006
£m £m £m
Current service cost 7.8 3.0 7.2
Past service cost 0.8 - 0.1
Administrative and life insurance costs 0.9 - 1.4
Interest costs 47.3 10.4 23.3
Expected return on plan assets (54.8) (12.0) (28.0)
Gains on curtailment (0.2) - (0.9)
Total expense 1.8 1.4 3.1
Defined contribution schemes
A number of companies in the Group operate defined contribution schemes,
predominantly Stakeholder arrangements. In addition a number of schemes
providing life assurance benefits only are operated. The total expense
recognised in the income statement of £0.6m (2006: £0.6m) represents
contributions payable to the plans by the Group at rates specified in the rules
of the plans.
Other post retirement benefits
The Group does not provide any other post retirement benefits.
17. Post balance sheet events
On 2 July 2007 the Group announced that, following the acquisition of RHM, a
review had been undertaken of its combined manufacturing facilities. The result
will be a restructuring programme, which will involve the closure of six sites
and the potential loss of up to 900 jobs. Provision for any impairment is being
assessed and will be made in the second half. Redundancy provisions will be
provided when appropriate.
On 21 August 2007 the Group sold the Ready Meals division of RHM Frozen Foods.
Inventory, plant and machinery and certain intellectual property were sold for
£1.1m to Rye Valley Foods Limited. Plant and machinery had already been subject
to an impairment charge as at 30 June 2007 which reduced their carrying value to
a realisable value of £0.8m. Assets and liabilities of RHM Frozen Foods as at
30 June 2007 have been classified as assets and liabilities held for sale (refer
note 11).
On 22 August 2007 the Group announced the proposed closures of a bakery in
Bradford and a depot in Telford, Shropshire with the potential loss of up to 430
jobs.
Independent review report to Premier Foods plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2007 which comprises the consolidated interim
balance sheet as at 30 June 2007 and the related consolidated interim statements
of income, cash flows and recognised income and expense for the six months then
ended and related notes. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing Rules
of the London Stock Exchange require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
This interim report has been prepared in accordance with the basis set out in
Note 2.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.
PricewaterhouseCoopers LLP 4 September 2007
Chartered Accountants
London
Notes:
a) The maintenance and integrity of the Premier Foods plc web site is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the web site.
b) Legislation in the United Kingdom governing the preparation and dissemination
of financial information may differ from legislation in other jurisdictions.
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