Interim Results
Premier Foods plc
07 August 2006
Premier Foods plc Interim Results 2006
Healthy core trading performance enhanced by acquisition of Quorn and Cauldron
Interim results for the six months to 1 July 2006
Unaudited Unaudited
six months to six months to Change
1 July 2006 2 July 2005
£m £m
Continuing operations
Turnover 430.5 363.6 18.4%
Trading profit* 47.6 37.6 26.6%
Operating profit 41.7 37.0 12.7%
Profit before tax 27.9 12.5 123.2%
Cash inflow from operating activities 52.3 30.5 71.5%
Earnings per share
Continuing operations - basic 8.3p 3.7p 124.3%
Continuing operations - adjusted** 8.5p 7.5p 13.3%
Total 8.3p 5.4p 53.7%
*Trading profit is defined as operating profit before exceptional items,
amortisation of intangible assets and the movement in the IAS39 valuation of
forward foreign exchange contracts.
**Adjusted earnings per share is defined as profit for the period before
exceptional items, amortisation of intangible assets and the movement in the
IAS39 valuation of forward foreign exchange contracts and interest rate swaps
divided by the weighted average number of ordinary shares of the Company.
• Like-for-like grocery sales up 3.1%
• Like-for-like trading profit up 4.6%, grocery up 6.7%
• Fresh produce operation stabilised
• Quorn and Cauldron acquisitions on track
• Interim dividend of 5.0 pence per ordinary share
• Cash from operating activities includes £18.3m of insurance proceeds
in relation to the final settlement of the Bury fire claim
Robert Schofield, Chief Executive of Premier Foods plc, said,
'We are pleased to report another set of healthy results in line with our sales
and earnings growth targets. We are delighted with the performance of Quorn
where the additional marketing investment we have put behind the brand has
resulted in double-digit sales growth.
'The outlook for the remainder of the year remains in line with our
expectations, with our branded sales performance helping to offset the utility
and energy-related cost pressures we are seeing in the supply chain.
'We are very excited by the proposed acquisition of Campbell's UK and its
portfolio of iconic British brands and look forward to taking full control of
the business and beginning its integration into Premier over the second half.'
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
Sara Batchelor
Justin Griffiths
A presentation to analysts will take place on Monday 7th August 2006 at 9:30am
at ABN AMRO, 250 Bishopsgate, London, EC2M 5AA.
Operating review - continuing operations
£m 2006 2005
H1 H1
Sales
Grocery 366.5 305.3 20.0%
Fresh produce 64.0 58.3 9.8%
Total sales 430.5 363.6 18.4%
Trading profit 47.6 37.6 26.6%
Trading profit margin 11.1% 10.3%
Amortisation of intangibles (4.2) (2.3) 82.6%
Foreign exchange valuation items (2.2) 1.7
Operating profit before exceptional items 41.2 37.0 11.4%
Exceptional items 0.5 -
Operating profit 41.7 37.0 12.7%
Total sales from continuing operations increased by 18.4% to £430.5m and
operating profit from continuing operations increased by 12.7% to £41.7m. The
comparative figures for 2005 exclude our tea business and Jonker Fris, which
were sold in the second half of 2005 and which have been reflected as
discontinued operations within these financial statements. The increase in both
sales and operating profit is primarily due to healthy trading in our core
Grocery business and a full six months contribution from our Quorn and Cauldron
businesses, which were acquired in June and October of 2005 respectively.
Grocery sales, which exclude Fresh Produce, increased by 20.0% and like-for-like
grocery sales, which also exclude the effect of the Quorn and Cauldron
acquisitions, increased by 3.1%. This growth rate, which is underpinned by the
strong performance of our brands, is above our target range of 2.0 to 2.5% as a
result of price increases across the majority of our product portfolio. These
have helped to offset the significant increases we have seen in utility and
energy-related costs.
Branded sales now represent 61% of our grocery product sales, up from 54% in the
first half of 2005. The majority of this increase is due to the inclusion of
the new Quorn and Cauldron businesses, although the organic development of the
portfolio contributed approximately 1% towards this movement. However, this was
offset by the effect of the termination of the Cadbury license and the
transition to the new Cadbury co-manufacturing agreement at the end of May.
Future sales under the new arrangement will be categorised as own label. All of
our principal brands continued to show strong growth with Quorn, Branston, Loyd
Grossman and Ambrosia all performing well.
Trading profit, which we have defined as operating profit before exceptional
items, amortisation of intangible assets and the revaluation of foreign exchange
contracts under IAS39, increased by £10.0m or 26.6% to £47.6m. The increase was
due to the inclusion of a full six months' contribution from the Quorn and
Cauldron businesses of £8.8m (2005: £0.5m) and an increase in trading profit for
the core grocery business of £2.4m, offset by the reduction in trading profit at
our Fresh Produce business of £0.7m. Within this, overall marketing expenditure
increased by 17% to £17.7m, with part of this movement arising from the
increased level of spend behind the recently acquired Quorn brand.
Grocery
£m 2006 2005
H1 H1
Sales 366.5 305.3 20.0%
Like-for-like sales* 309.3 300.0 3.1%
Trading profit 47.2 36.5 29.3%
Like-for-like trading profit* 38.4 36.0 6.7%
*Like-for-like represents results from continuing operations excluding results
from acquired and discontinued operations
Convenience Foods, Pickles, Sauces & Meat-Free
£m 2006 2005
H1 H1
Sales 225.5 173.4 30.0%
Like-for-like sales* 168.3 168.1 0.1%
Trading profit 16.5 12.5 32.0%
Like-for-like trading profit* 7.7 12.0 (35.8%)
*Like-for-like represents results from continuing operations excluding results
from acquired and discontinued operations
Sales of Convenience Foods, Pickles, Sauces & Meat-Free increased by 30.0% to
£225.5m due to a full six months contribution from the Meat-Free part of the
product group. The like-for-like business was broadly flat with strong
performances from Loyd Grossman and Branston offset by declines in our smaller
brands and retailer branded business. We are particularly pleased by the
performance of Branston beans, which has maintained a 10% market share following
its launch in the last quarter of 2005.
We are delighted by the performance of Meat-Free which has seen double-digit
sales growth in the first six months of 2006 compared to the same period in
2005. The additional investment in advertising and new product launches which we
have put behind Quorn over the last twelve months has helped to further increase
household penetration with the number of households regularly buying Quorn up to
19.3% against 17.7% for the same period in 2005.
As we indicated at the time of the announcement of the Campbell's UK
acquisition, we have acquired a dedicated 'chilled' manufacturing facility at
Methwold in Norfolk at a cost of approximately £4m. We intend to consolidate
production of our Cauldron branded products into this new site along with a
significant proportion of the 'finishing' of some of the Quorn product range
which is currently outsourced. This should enhance margins on these products and
remove capacity constraints on our Cauldron range. We anticipate the total cost
of the facility will be in the region of £11m and it should commence production
in the first half of 2007.
Trading profit for the product group was £16.5m, an increase of £4.0m on 2005.
This was due to the inclusion of a full six months contribution from the
Meat-Free part of the product group, solid performances from the Pickles and
Sauces categories, with the Loyd Grossman brand continuing to perform well,
offset by a fall in the trading profit of the Convenience Foods part of the
product group. This decline was principally due to the increased marketing spend
behind Branston beans, building on the successful launch of this new range in
the Autumn of 2005, the poor performance of a number of own label contracts and
the effect of increases in utility and energy-related costs.
Spreads, Desserts & Beverages
£m 2006 2005
H1 H1
Sales 141.0 131.9 6.9%
Trading profit 30.7 24.0 27.9%
Sales in our Spreads, Desserts & Beverages product group increased by 6.9% to
£141.0m with strong sales performances from Ambrosia, the Hartley's spreads
business and the own label side of the product group. The 2006 sales also
include an additional 6 weeks contribution from the Bird's business, which was
acquired in February 2005 but this was broadly offset by the reduction in sales
of Cadbury branded beverages following the transition to the new
co-manufacturing arrangement in May.
Trading profit for the Spreads, Desserts & Beverages product group increased by
27.9% to £30.7m. The increase was due to a combination of the strong sales
growth, the realisation of synergies on the transfer of Bird's production into
our Knighton factory and a reduction in consumer-focused promotional spend in
this product group as expenditure was re-allocated to marketing priorities in
other areas of the group, principally, Quorn and Branston.
Fresh Produce
£m 2006 2005
H1 H1
Sales 64.0 58.3 9.8%
Trading profit 0.4 1.1 (63.6%)
Sales by our Fresh Produce business increased by 9.8% to £64.0m, due to the
inclusion of sales from Gedney's, which was acquired in September 2005. This was
offset by lower sales of potatoes in comparison to the prior period as a result
of a number of contracts which came to an end during the first half of 2005.
The loss of these contracts was also responsible for significant overcapacity in
the business as a result of which Fresh Produce reported a loss in the second
half of the year. This situation has been addressed, and with the closure of the
Chatteris site, the footprint of the business is more closely matched to its
current trading base. The business is now stable, has won a number of new
contracts and has returned to profitability in the first half of 2006, with a
trading profit of £0.4m.
Outlook
The outlook for the remainder of the year remains promising with our drive
brands continuing to perform well. Quorn has delivered a performance ahead of
our expectations for the brand at the time of its acquisition aided by the
additional investment we have made in the brand. Loyd Grossman continues to show
excellent growth and we look forward to the next stage in the development of
Branston beans with further TV advertising scheduled in the second half of the
year.
We are very excited by the prospect of acquiring the Campbell's UK business with
its portfolio of iconic British brands, including Oxo, Batchelors and Homepride.
We look forward to taking full control of the business and beginning its
integration into the Premier Foods group. We have some exciting ideas and plans
for these brands and look forward to beginning their implementation over the
second half of the year.
We expect the environment in which we operate will continue to remain tough as a
result of ongoing cost pressures, particularly in utility and energy-related
areas, and the abnormally hot weather we experienced in July. Despite this, we
believe the strength of our brands and the resilience of our business model will
enable us to offset these issues and, as a result, our expectations for the rest
of the year remain unchanged.
Robert Schofield
Chief Executive
Financial review
The Group is presenting its interim results for the six months to 1 July 2006
with comparative information for the six months to 2 July 2005. The comparative
interim and full year financial information has been restated to reflect the
disposal of the tea and Jonker Fris businesses on 30 October 2005 and 7 December
2005 respectively. The interim results of Premier Foods plc are prepared in
accordance with International Financial Reporting Standards ('IFRS') as adopted
by the EU.
Income Statement - continuing operations
Sales
Turnover for the first half of 2006 from continuing operations increased by
18.4% to £430.5m. The majority of this increase is the result of the inclusion
of a full six months result from businesses acquired during 2005. Grocery
like-for-like sales, stated before the impact of acquisitions, increased by 3.1%
to £309.3m.
While this was slightly ahead of the group's medium term target range of 2.0% to
2.5%, this performance did incorporate a level of price increase geared to
recover the unusual level of cost pressure experienced due to the effect of high
utility prices and energy related costs.
Operating profit
Operating profit before exceptional items for the continuing business was £41.2m
for the first half of 2006, an increase of £4.2m, or 11.4%, compared to the same
period in 2005. Operating profit after exceptional items increased by 12.7% to
£41.7m.
Gross profit increased by 20.8% to £103.2m largely as a result of the sales
growth referred to above and an improvement in the group's gross profit margin
of 0.5% to 24.0% (2005: 23.5%). While gross profit margins fell in Fresh
Produce due to the loss of contracts in the first half of 2005, Grocery margins
improved as a consequence of the inclusion of the acquired Quorn and Cauldron
businesses.
Selling and distribution expenses and administrative costs both saw increases
arising primarily from the inclusion of the newly acquired businesses. Selling
and distribution expenses were £37.0m for the first half of 2006, an increase of
17.8%, on 2005. This included a substantial uplift in the spend behind Quorn,
which has driven an improvement in the household penetration of the brand and
the continuation of the investment in Branston beans. As a proportion of sales,
selling and distribution expenses remained flat at 8.6%.
Similarly, administrative expenses increased by 25.9% to £23.8m. In addition to
the costs of the acquired businesses, this increase also includes the additional
amortisation arising on the intangible assets acquired. Excluding this
amortisation of intangible assets, administrative expenses have also remained at
a similar proportion of sales year on year.
Other operating expenditure of £0.7m includes the movement in the fair value of
open forward foreign exchange contracts. Changes in the fair values of
unsettled forward foreign exchange contracts that are not designated as hedges
are recorded as other operating income or expenditure rather than as cost of
sales. The amount charged for the period was £2.2m (2005: £1.7m credit). This
has been offset by the final element of business interruption income recovered
under the Bury St Edmunds fire insurance claim of £0.9m (2005: £0.5m) and the
gain on settled foreign exchange transactions of £0.6m (charge £0.3m).
Exceptional Items
While IFRS does not explicitly address exceptional items, the Group presents
separately certain items of financial significance in order to provide a better
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.
Exceptional items for the period reflect the aggregate effect of a number of
such items, resulting in a net income of £0.5m (2005: £nil). In this period,
the principal components of this exceptional credit include the profit on the
disposal of surplus property at North Walsham of £3.1m, which has been offset by
redundancy and restructuring costs of £1.7m relating to the acquisition of
Marlow Foods and Cauldron and the closure of the MBM site at Chatteris and
incremental Bird's costs of £0.9m.
Finance costs
Finance costs for the period of £13.8m compare to an equivalent charge of £24.5m
for 2005, a reduction of £10.7m. Within this net cash interest increased by
£3.9m, from £14.8m to £18.7m, principally due to the additional funding cost of
additional debt raised to finance the acquisition of Marlow Foods, Cauldron and
Gedney's, offset by the disposal proceeds from the sale of the tea business and
Jonker Fris during the latter half of 2005.
The balance of the movement on finance costs reflects a reduction in the
amortisation of debt issuance costs against the first half of 2005, which
included an accelerated amortisation charge of £6.3m on the refinancing of the
group's credit facilities at the time of the acquisition of Marlow Foods and a
£7.9m favourable movement on the valuation of unsettled interest rate swaps
under IAS39. 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 profit and loss account.
Taxation
The tax charge and effective rate of tax for continuing operations were £7.3m
and 26.2% respectively. This was slightly lower than our anticipated rate due to
the utilisation of unrecognised brought forward capital losses against profits
on the disposal of the North Walsham site. The charge for the second half should
remain in line with our anticipated rate.
Dividend
In line with our stated dividend policy, on 7 August we declared an interim
dividend of 5.00p per share, an increase of 5.3% on the interim dividend for
2005, resulting in a total interim dividend of £12.4m payable on 5 January 2007
to shareholders on the register of members at 18 August 2006. The shares will
be marked ex-dividend on 16 August 2006. 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
The net cash inflow for the current period of £15.6m is made up of the net cash
inflow from operating activities of £52.3m offset by net capital expenditure of
£13.9m and a repayment of borrowings £22.8m.
The improvement in cashflow from operating activities of £21.8m to £52.3m is
principally due to a favourable movement on working capital of £20.8m. The major
element of this movement is the £18.3m final payment in settlement of the Bury
fire insurance claim.
Acquisition of Campbell's UK
Following the announcement of our proposed acquisition of the UK and Ireland
businesses of the Campbell Soup Company ('Campbell's UK') subject to the
approval of shareholders at our Extraordinary General Meeting on 14 August 2006,
the financing structure of the Group will change to reflect the rights issue and
changes to our existing borrowing arrangements. We anticipate ownership will
take effect on 15 August 2006.
As a result of the proposed acquisition of Campbell's UK, the Group has arranged
an Amended and Restated Facilities agreement, comprising a £325m A Term
Facility, a £200m B Term Facility and a £560m multi-currency revolving facility.
This new facility will become unconditional on the completion of the
acquisition of Campbell's UK.
Paul Thomas
Finance Director
Consolidated income statement (unaudited)
Half year ended Year ended
1 2 31
July July December
2006 2005 2005
Note £m £m £m
Continuing operations
Turnover 4 430.5 363.6 789.7
Cost of sales (327.3) (278.2) (583.3)
Gross profit 103.2 85.4 206.4
Selling and distribution costs (37.0) (31.4) (73.7)
Administrative costs (23.8) (18.9) (39.8)
Other operating (expenditure)/income 5 (0.7) 1.9 2.4
Operating profit 41.7 37.0 95.3
Before exceptional items 41.2 37.0 102.1
Exceptional items 6 0.5 - (6.8)
Interest payable and other financial charges 7 (23.2) (28.7) (51.5)
Interest receivable and similar income 7 9.4 4.2 8.0
Profit before taxation for continuing operations 27.9 12.5 51.8
Taxation 8 (7.3) (3.4) (14.9)
Profit after taxation for continuing operations 20.6 9.1 36.9
Discontinued operations - 4.0 46.7
Profit for the period 20.6 13.1 83.6
Earnings per share (pence)
Basic 9 8.3 5.4 34.0
Diluted 8.3 5.3 33.7
Basic - continuing 9 8.3 3.7 15.0
Diluted 8.3 3.6 14.9
Basic - discontinued 9 - 1.7 19.0
Diluted - 1.7 18.8
Dividends
Dividend (£m) 10 12.4 11.6 35.3
Declared dividend per share (pence) 5.00 4.75 14.25
Consolidated balance sheet (unaudited)
As at As at As at
1 2 31
July July December
2006 2005 2005
Note £m £m £m
ASSETS:
Non-current assets
Property, plant and equipment 198.3 186.7 197.3
Goodwill 11 259.2 218.9 267.7
Intangible assets 11 166.1 161.9 151.5
Investments 0.1 - 0.1
Retirement benefit assets and other receivables 0.3 0.8 0.4
Deferred tax assets - 1.5 -
Current assets
Inventories 83.1 99.8 89.8
Trade and other receivables 102.5 129.6 136.3
Financial assets - derivatives 5.8 0.7 1.3
Cash and cash equivalents 28.8 93.3 14.0
Total assets 844.2 893.2 858.4
LIABILITIES:
Current liabilities
Trade and other payables (147.5) (149.2) (166.8)
Dividends payable (23.5) - -
Financial liabilities
- short term borrowings (24.3) (119.4) (35.9)
- loan notes (3.3) - -
- derivatives (2.5) (2.4) (1.5)
Interest payable (2.1) (2.9) (2.0)
Provisions (1.6) (3.3) (0.3)
Current tax liabilities (19.6) (15.2) (19.4)
Non-current liabilities
Financial liabilities
- long-term borrowings (536.1) (594.6) (546.1)
- loan notes - (5.1) (4.1)
Retirement benefit obligations (46.4) (58.7) (84.5)
Provisions (0.4) - (0.4)
Other liabilities (0.1) - (0.1)
Deferred tax liabilities (31.7) - (15.3)
Total liabilities (839.1) (950.8) (876.4)
Net assets/ (liabilities) 5.1 (57.6) (18.0)
EQUITY
Capital and reserves
Share capital 2.5 2.4 2.5
Share premium 321.5 320.9 321.5
Merger reserve (136.8) (136.8) (136.8)
Other reserves - (1.8) (0.2)
Profit and loss reserve (182.1) (242.3) (205.0)
Total shareholders' funds/(deficit) 5.1 (57.6) (18.0)
Consolidated cash flow statement (unaudited)
Half year ended Year ended
1 2 31
July July December
2006 2005 2005
Note £m £m £m
Net cash generated by operations 12 75.9 46.0 117.7
Interest paid (22.5) (18.5) (42.6)
Interest received 3.9 4.0 6.3
Taxation paid (5.0) (1.0) (7.5)
Cash inflow from operating activities 52.3 30.5 73.9
Acquisition of Birds - (71.5) (72.1)
Acquisition of Marlow - (116.5) (118.6)
Acquisition of Gedney's - - (4.6)
Acquisition of Cauldron - - (27.1)
Sale of subsidiaries/businesses - - 81.6
Purchase of property, plant and equipment (12.8) (16.6) (49.8)
Receipts from insurers for capital items - 5.7 12.0
Purchase of intangible assets (5.3) - (1.1)
Sale of property, plant and equipment 4.2 - 2.7
Cash outflow from investing activities (13.9) (198.9) (177.0)
Repayment of borrowings 12 (22.8) (380.0) (380.0)
Proceeds from new borrowings - 685.8 585.9
Share issue refund - - 0.6
Debt issuance costs - (5.4) (5.6)
Repayment of debt acquired with Marlow - (52.8) (53.4)
Dividends paid - (22.0) (33.8)
Cash (outflow)/inflow from financing activities (22.8) 225.6 113.7
Net inflow of cash and cash equivalents 15.6 57.2 10.6
Cash and cash equivalents at beginning of period 13.2 2.6 2.6
Cash and cash equivalents at end of period 12 28.8 59.8 13.2
Note: Acquisition cash flows are stated net of cash acquired.
Consolidated statement of recognised income and expense (unaudited)
Half year ended Year ended
1 2 31
July July December
2006 2005 2005
Note £m £m £m
Profit for the period 20.6 13.1 83.6
Foreign currency retranslation - (0.9) -
Actuarial gains and losses 35.9 4.8 (26.0)
Deferred tax on actuarial gains and losses (11.0) (1.5) 7.8
Deferred tax on share options - 1.2 0.7
Net gain/(loss) not recognised in income statement 24.9 3.6 (17.5)
Total recognised income in the period 45.5 16.7 66.1
Effect of adopting IAS 39 at 1 January 2005 - (1.8) (1.8)
45.5 14.9 64.3
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 2005.
2. Accounting Policy
Basis of preparation
This financial information comprises the consolidated balance sheets as at 1
July 2006, 2 July 2005 and 31 December 2005 and related consolidated income
statement, consolidated condensed statement of cash flows and statements of
recognised income and expenditure for the periods 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 2005 annual report. The results of operations
for the half year periods are not necessarily indicative of the results to be
expected for the full year. The accompanying consolidated financial information
should be read in conjunction with the consolidated financial statements and
notes thereto, included in the Group's 2005 annual report.
The Group has chosen not to adopt IAS 34, 'Interim financial statements', in
preparing its 2006 interim statements and, therefore, this interim financial
information is not in full compliance with IFRS.
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 2005, 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 the statements under section 237(2) or (3) of the Companies Act 1985.
Basis of consolidation
The consolidated financial statements include the financial statements of
Premier Foods plc and entities controlled by the Company (its subsidiaries) made
up to 1 July 2006. 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 year 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 application of judgment is fundamental to the compilation of a set of
financial statements, some of which relates to transactions or balances that are
of greater significance than others. The primary area in which this affects the
Group is noted below:
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 1 July 2006, the
aggregate net deficit on the Group's pension schemes was £46.4m (2 July 2005:
£58.7m). While broadly in line year on year, this represents a significant
reduction against the net deficit as at 31 December 2005 and is mainly a
reflection of the difference in the market rates for bond yields at the relevant
dates.
4. Segmental analysis
The results below for all periods are divided into continuing and discontinued
operations, with the two continuing segments being Grocery and Fresh Produce.
Following the disposal of our tea business, within Grocery we now refer to two
product groupings, namely Convenience Foods, Pickles, Sauces and Meat-Free
(which now incorporates Quorn and Cauldron) and Spreads, Desserts and Beverages.
Comparative period results for the tea business and Jonker Fris are presented
as discontinued operations.
Each of these segments primarily supplies the United Kingdom market, although we
also supply certain products to mainland Europe and the United States.
Inter-segment transfers or transactions are entered into under the same terms
and conditions that would be available to unrelated third parties. These
segments are the basis on which the Group reports its primary segment
information. The segment results for the half year ended 1 July 2006, 2 July
2005 and for the year ended 31 December 2005 are as follows:
Half year ended 1 July 2006
Grocery Fresh Unallocated Total for Group
Produce
Turnover £m £m £m £m
Total turnover from continuing operations 366.5 64.0 - 430.5
Result
Operating profit before exceptional items 41.1 0.1 - 41.2
Exceptional items 1.3 (0.8) - 0.5
Interest payable and other financial - - (23.2) (23.2)
charges
Interest receivable - - 9.4 9.4
Profit/(loss) before taxation for
continuing operations 42.4 (0.7) (13.8) 27.9
Taxation (7.3) (7.3)
Profit/(loss) after taxation for
continuing operations 42.4 (0.7) (21.1) 20.6
Discontinued operations - - - -
Profit/(loss) for the period 42.4 (0.7) (21.1) 20.6
Half year ended 2 July 2005
Grocery Fresh Unallocated Total for Group
Produce
Turnover £m £m £m £m
Total turnover from continuing operations 305.3 58.3 - 363.6
Result
Operating profit before exceptional items 35.9 1.1 - 37.0
Exceptional items 1.3 (1.3) - -
Interest payable and other financial
charges - - (28.7) (28.7)
Interest receivable - - 4.2 4.2
Profit/(loss) before taxation for
continuing operations 37.2 (0.2) (24.5) 12.5
Taxation - - (3.4) (3.4)
Profit/(loss) after taxation for
continuing operations 37.2 (0.2) (27.9) 9.1
Discontinued operations 4.0 - - 4.0
Profit/(loss) for the period 41.2 (0.2) (27.9) 13.1
Year ended 31 December 2005
Grocery Fresh Unallocated Total for Group
Produce
Turnover £m £m £m £m
Total turnover from continuing operations 683.4 106.3 - 789.7
Result
Operating profit before exceptional items 101.6 0.5 - 102.1
Exceptional items (3.1) (3.7) - (6.8)
Interest payable and other financial - - (51.5) (51.5)
charges
Interest receivable - - 8.0 8.0
Profit/(loss) before taxation for
continuing operations 98.5 (3.2) (43.5) 51.8
Taxation - - (14.9) (14.9)
Profit/(loss) after taxation for
continuing operations 98.5 (3.2) (58.4) 36.9
Discontinued operations 46.7 - - 46.7
Profit/(loss) for the year 145.2 (3.2) (58.4) 83.6
Segmental analysis - secondary
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
1 2 31
July July December
2006 2005 2005
£m £m £m
United Kingdom 406.7 350.1 757.4
Mainland Europe 17.6 9.4 25.4
Other countries 6.2 4.1 6.9
Total 430.5 363.6 789.7
5. Other operating expenditure/(income)
Half year ended Year ended
1 2 31
July July December
2006 2005 2005
£m £m £m
Mark-to-market valuation of foreign exchange contracts 2.2 (1.7) (1.1)
(Gain)/loss on settled foreign exchange contracts (0.6) 0.3 0.2
Business interruption income relating to Bury Fire (0.9) (0.5) (1.5)
Net expenditure/(income) 0.7 (1.9) (2.4)
6. Exceptional items
The Group defines exceptional items as those items of financial significance
that are disclosed separately in order to assist in understanding the financial
performance achieved and in making projections of future results. In the
current period, exceptional items comprised, income on property disposals
(£3.1m) offset by restructuring costs (£1.7m) and additional transitional
manufacturing costs in relation to the Bird's business (£0.9m).
7. Interest payable
Half year ended Year ended
1 July 2 July 31 December
2006 2005 2005
£m £m £m
Interest payable on bank loans, senior notes and overdrafts 4.6 3.8 8.6
Interest payable on term facility 9.3 11.4 20.4
Interest payable on revolver facility 8.7 3.8 13.4
Amortisation of debt issuance costs 0.6 1.0 1.7
Fair valuation of interest rate swaps - 2.4 1.1
23.2 22.4 45.2
Accelerated amortisation of debt issuance costs - 6.3 6.3
Total interest payable and other financial charges 23.2 28.7 51.5
Fair valuation of interest rate swaps (5.5) - -
Interest receivable - bank deposits (3.9) (4.2) (8.0)
Total interest receivable and other financial income (9.4) (4.2) (8.0)
Net interest payable 13.8 24.5 43.5
8. Tax on profit on ordinary activities
The tax charge for the first half of 2006 of £7.3m (2 July 2005: £3.4m)
represents an effective tax rate for the year of 26% applied to profit before
tax. The effective tax rate is determined after taking into account items
disallowable for tax purposes and an adjustment for prior year tax. The rate
has been reduced by the effect of certain exceptional profits not being taxed
due to the availability of capital losses.
We anticipate the tax charge recognised for the first half will be broadly
consistent with the rate of tax applicable for the whole of 2006, ignoring the
impact of any acquisitions to be made.
9. Earnings per share
Basic earnings per share have been calculated by dividing earnings from
continuing operations attributable to ordinary shareholders of £20.6m (2005:
£9.1m) by the weighted average number of ordinary shares of the Company in issue
during that period.
Half year ended 1 July Half year ended 2 July Year ended 31 December 2005
2006 2005
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) 20.6 - 20.6 9.1 - 9.1 36.9 - 36.9
Weighted average number of
shares (million) 247.8 0.2 248.0 244.5 3.5 248.0 245.5 2.4 247.9
Earnings per share (pence) 8.3 - 8.3 3.7 (0.1) 3.7 15.0 (0.1) 14.9
Discontinued operations
Profit after tax (£m) - - - 4.0 - 4.0 46.7 - 46.7
Weighted average number of
shares (million) - - - 244.5 3.5 248.0 245.5 2.4 247.9
Earnings per share (pence) - - - 1.7 - 1.6 19.0 (0.2) 18.8
Total
Profit after tax (£m) 20.6 - 20.6 13.1 - 13.1 83.6 - 83.6
Weighted average number of
shares (million) 247.8 0.2 248.0 244.5 3.5 248.0 245.5 2.4 247.9
Earnings per share (pence) 8.3 - 8.3 5.4 (0.1) 5.3 34.0 (0.3) 33.7
10. Dividends
The Board proposes an interim dividend of 5.00 pence per ordinary share payable
on 5 January 2007 to shareholders on the Register of Members as at 18 August
2006. 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 2005 of £23.5m was approved in the period and was paid on 7
July 2006.
11. Acquisition of Bird's, Marlow Foods Holdings Limited and Cauldron Foods
Limited
On 14 February 2005 the Group completed the acquisition of the Bird's Custard,
Angel Delight and associated brands from Kraft Foods Inc. (collectively
'Bird's') for a total consideration of £72.1m. On 6 June 2005, the Group
completed the acquisition of Marlow Foods Holdings Limited for a total
consideration of £176.1m. On 31 October 2005, the Group completed the
acquisition of Cauldron Foods Limited for a total consideration of £27.1m.
Subsequent to the year ended 31 December 2005, the Group has completed the
exercise of attributing fair values to the assets and liabilities acquired with
Bird's and Marlow Foods Holdings Limited. As a result, fair value adjustments
have been made in relation to Property, Plant and Equipment of Marlow Foods
Holdings Limited resulting in an increase in Goodwill of £0.8m. Furthermore, a
fair valuation of intangible assets has been performed in respect of Cauldron
Foods Limited, resulting in £13.5m of intangible assets being identified.
In accordance with International Financial Reporting Standard 3 Business
Combinations ('IFRS 3'), the fair values of assets and liabilities acquired with
each business are as follows:
Cauldron Foods Bird's Marlow Foods Holdings
Limited Limited
Fair Book value Fair Book Fair value Book value
value* value value
£m £m £m £m £m £m
Property, plant and equipment 5.3 5.3 - 2.0 38.1 38.9
Intangible assets 13.7 0.2 30.2 - 80.0 -
Inventories 0.3 0.3 3.5 3.5 9.9 9.9
Trade and other receivables 2.4 2.4 - - 14.5 14.5
Cash and cash equivalents 0.2 0.2 - - 8.3 8.3
Trade and other payables (2.2) (2.2) - - (11.1) (11.1)
Financial liabilities - long term borrowings - - - - (53.4) (49.6)
Current tax liabilities - - - - (1.2) (2.4)
Deferred tax liabilities (4.2) (0.2) - - (31.6) (7.8)
Net assets acquired 15.5 6.0 33.7 5.5 53.5 0.7
*Cauldron Foods Limited are provisional fair values only.
12. Reconciliation of operating profit to cash generated from operating
activities
Half year ended Year ended
1 2 31
July July December
2006 2005 2005
£m £m £m
Continuing operations
Operating Profit 41.7 37.0 95.3
Depreciation of property, plant and equipment 9.5 6.5 15.9
Amortisation of intangible assets 4.2 2.3 6.3
Gain on disposal/impairment of property, plant and equipment (2.7) (3.7) (4.7)
Revaluation losses/(gains) on financial instruments 2.2 (1.4) (1.1)
Share based payments 0.3 0.4 1.1
Net cash inflow from operating activities before interest, tax 55.2 41.1 112.8
(paid)/received and movements in working capital
Decrease/(increase) in inventories 6.7 6.3 (0.7)
Decrease/(increase) in receivables 34.1 (4.9) (12.4)
(Decrease)/increase in other payables and provisions (17.7) 0.9 16.9
Movement in net retirement benefit obligations (2.4) (2.3) (5.4)
Cash generated from continuing operations 75.9 41.1 111.2
Discontinued operations - 4.9 6.5
Cash generated from operations 75.9 46.0 117.7
Exceptional items cash flow 1.6 - (8.9)
Cash generated from operations before exceptional items 74.3 46.0 126.6
Additional analysis of cash flows
1 2 31
July July December
2006 2005 2005
£m £m £m
Interest received 3.9 4.0 6.3
Interest paid (22.5) (18.5) (42.6)
Issue costs of new bank loan - - (5.6)
Return on investments and servicing of finance (18.6) (14.5) (41.9)
Sale of subsidiaries/businesses - - 81.6
Sale of subsidiaries/businesses - - 81.6
Reconciliation of cash and cash equivalents to net borrowings
1 2 31
July July December
2006 2005 2005
£m £m £m
Net inflow of cash and cash equivalents 15.6 57.2 10.6
Debt acquired with Marlow - (53.4) (53.4)
Decrease/(increase) in borrowings 22.8 (247.0) (146.0)
Other non-cash changes (1.2) (12.3) (13.0)
Decrease/(increase) in borrowings net of cash 37.2 (255.5) (201.8)
Total borrowings net of cash at beginning of year (572.1) (370.3) (370.3)
Total borrowings net of cash at end of year (534.9) (625.8) (572.1)
Analysis of movement in borrowings
As at Other non As at
1 January cash 1 July
2006 Cashflow changes 2006
£m £m £m £m
Short term borrowings (0.8) 0.8 - -
Cash and bank deposits 14.0 14.8 - 28.8
Cash and cash 13.2 15.6 - 28.8
equivalents net of
borrowings
Borrowings - term (325.0) - - (325.0)
Borrowings - revolver (260.0) 22.0 - (238.0)
Loan notes (4.1) 0.8 - (3.3)
Finance leases (0.9) - (0.6) (1.5)
Other (0.1) - - (0.1)
Borrowings (576.9) 38.4 (0.6) (539.1)
Debt issuance costs 4.8 - (0.6) 4.2
Total net debt (572.1) 38.4 (1.2) (534.9)
13. Post balance sheet events
Acquisition of the UK and Ireland businesses of Campbell Soup Company
('Campbell's UK')
On 12 July 2006, Premier Foods announced it had reached agreement to acquire the
UK and Irish businesses of Campbell Soup Company ('Campbell's UK') for a
consideration of £460m. Campbell's UK is a major supplier of ambient grocery
products, manufacturing, marketing and distributing soups, sauces, canned and
dehydrated foods.
The proposed acquisition is subject to the approval of shareholders at an
Extraordinary General Meeting to be held on 14 August 2006. On approval Premier
Foods plc will enter a rights period prior to the issue of 247,847,545 new
shares of the Company on 8 September 2006 at a price of £1.85 per new ordinary
share.
On 15 August 2006, Premier Foods will draw down £460m from a bridging loan in
order to finance the acquisition of Campbell's UK. The bridging loan will be in
place until the proceeds from the rights issue are received which will be used
to repay the bridging loan.
As a result of the proposed acquisition of Campbell's UK, the Group has arranged
an Amended and Restated Facilities agreement, comprising a £325m A Term
Facility, a £200m B Term Facility and a £560m multi-currency revolving facility.
This new facility will become unconditional on the completion of the
acquisition of Campbell's UK.
This information is provided by RNS
The company news service from the London Stock Exchange
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