TIDMPFD
RNS Number : 8027L
Premier Foods plc
05 August 2011
INTERIM RESULTS FOR THE HALF YEAR ENDED 25 JUNE 2011
Key figures (GBPm)
2011 2010 %
-------------------------------------- ------ ------ -------
Total pro forma sales from ongoing
business 974 982 (0.9)
-------------------------------------- ------ ------ -------
Trading profit from ongoing business 67 94 (28.7)
-------------------------------------- ------ ------ -------
Operating profit for continuing
operations 42 63 (33.3)
-------------------------------------- ------ ------ -------
Loss before tax for continuing
operations (3) (58) 94.8
-------------------------------------- ------ ------ -------
Net debt 1,139 1,364 16.5
-------------------------------------- ------ ------ -------
Highlights
-- Challenging trading conditions due to consumer environment
and raw material cost inflation;
-- Pricing implemented to cover raw material inflation albeit
with a GBP25m total cost of both a timing lag and a temporary
customer dispute;
-- Sale of Meat-free business completed in the Half Year and
Canning business completed in July raising a total of GBP362m;
-- Net debt GBP1,139m, down GBP225m year on year. Average debt
to EBITDA 4.45x. Pro forma net debt GBP972m once Canning proceeds
received. Average debt to EBITDA 4.00x on a pro forma basis after
disposals;
-- Logistics and head office restructuring will yield GBP20m in
annual savings by 2013;
-- Mike Clarke joins on 1 September as Chief Executive
Officer.
Commenting on the results, Chief Financial Officer, Jim Smart
said:
"This was a challenging period not only for Premier Foods but
also for the food industry as a whole. We faced a combination of
reduced consumer spending and significant raw material inflation.
We were further hampered by a temporary pricing dispute with one of
our major customers which has since been resolved and by
underperformance at Brookes Avana.
"We were successful in passing on the majority of our higher
input costs, completed two significant disposals and reduced our
borrowings. We have continued to deliver efficiencies in line with
our targets and have now commenced a further cost saving
programme."
For further information, please contact:
Premier Foods plc +44 (0) 1727 815 850
Jim Smart, Chief Financial Officer
Richard Godden, Head of Investor Relations
Maitland +44 (0) 20 7379 5151
Neil Bennett
Brian Hudspith
Emma Burdett
A presentation to analysts and investors will take place on
Friday 5 August 2011 at 9.00am at City Presentation Centre, 4
Chiswell Street, London, EC1Y 4UP. The presentation will also be
webcast at www.premierfoods.co.uk.
1. The accounting period is from 1 January 2011 to 25 June 2011.
The comparative is based on 1 January 2010 to 26 June 2010. The
2011 period thus contains one fewer trading day. In order to
present consistent information, we also present pro forma sales
information for the 6 months to 30 June.
2. In the interests of clarity the results of the Group
excluding the Meat-free and Canning businesses are shown as Ongoing
Business. In the financial information the results of the Meat-free
business are shown as discontinued operations and the results of
the Canning business are included within continuing operations
within the Grocery segment.
3. Trading profit is defined as operating profit before
exceptional items, amortisation of intangible assets, the
revaluation of foreign exchange and other derivative contracts
under IAS 39 and pension credits or charges in relation to the
difference between expected return on pension assets,
administration costs and interest costs on pension liabilities.
4. Pro forma adjusted profit after tax is defined as trading
profit less pro forma net regular interest payable less a notional
tax charge at 26.0% (2010: 28.0%).
5. Pro forma net regular interest is defined as net interest
after excluding non-cash items, namely exceptional write-off of
financing costs, accelerated amortisation of debt issuance costs,
fair value adjustments on interest rate financial instruments and
the unwind of the discount on provisions, adjusted to show the
effect as if the disposals of the Meat-free and canning businesses
had happened on 1 January 2010.
6. Pro forma adjusted EPS is defined as pro forma adjusted
profit divided by the weighted average number of ordinary shares of
the Company.
7. Net debt is defined as net borrowings less obligations due
under finance leases.
8. Comparatives have been restated to reflect the classification
of the Meat-free business as a discontinued operation.
Notes for editors
Premier Foods is the UK's largest food producer, which
manufactures, sells and distributes a wide range of branded and
retailer branded foods. We supply a broad range of customers
including the major multiple retailers, wholesalers, foodservice
providers and other food manufacturers. Premier Foods owns iconic
British brands such as Hovis, Mr Kipling, Batchelor's, Bisto,
Ambrosia, Sharwood's, Branston, Oxo, Hartley's and many more. The
business employs around 14,000 people and operates from nearly 60
sites across the UK and Ireland.
For high resolution images, please go to
www.premierfoods.co.uk/media/image-gallery/
OPERATING AND FINANCIAL REVIEW
Introduction
The accounting period being reported is for 1 January 2011 to 25
June 2011 versus 1 January 2010 to 26 June 2010. Hence the 2011
consolidated interim financial information contains one fewer
trading day. In the interest of consistency, pro forma information
on sales is also included on a 1 January to 30 June basis. Full
details are shown in the appendices. Profit and loss analyses are
based on the statutory reporting period. Sales analyses use the pro
forma basis.
In the statutory accounts, the Meat-free business is treated as
Discontinued and the Canning business, as it was not a separate
operating segment, is reported within the Grocery segment as
continuing. In the interests of clarity, the results of the Group
excluding both Meat-free and Canning businesses are shown as
Ongoing Business. A full reconciliation is provided in the
appendices. In summary the Group's P&L is as follows:
11 v 10
2011 H1 2010 H1 %
------------------------------------ ------- ------- -------
Ongoing business trading profit 67 94 (28.7)
------------------------------------ ------- ------- -------
Canning trading profit 7 11 (36.4)
------------------------------------ ------- ------- -------
Continuing operations trading
profit 74 105 (29.5)
------------------------------------ ------- ------- -------
Non trading items including
Amortisation and Derivatives (32) (42) 23.8
------------------------------------ ------- ------- -------
Operating profit for continuing
operations 42 63 (33.3)
------------------------------------ ------- ------- -------
Net regular interest (59) (77) 23.4
------------------------------------ ------- ------- -------
Other interest (1) (1) -
------------------------------------ ------- ------- -------
Fair value movement on interest
rate financial instruments 15 (43) 134.9
------------------------------------ ------- ------- -------
Loss before taxation for continuing
operations (3) (58) 94.8
------------------------------------ ------- ------- -------
Taxation 5 15 66.7
------------------------------------ ------- ------- -------
Profit/(loss) after taxation
for continuing operations 2 (43) 104.7
------------------------------------ ------- ------- -------
Meat free profit - 4
------------------------------------ ------- ------- -------
Loss on sale of operations (14) -
------------------------------------ ------- ------- -------
Taxation on Meat-free - (1)
------------------------------------ ------- ------- -------
Loss attributable to shareholders (12) (40) 70.0
------------------------------------ ------- ------- -------
All figures in this statement relate to the Ongoing Business
unless otherwise stated.
Summary
11 v 10
2011 H1 2010 H1 %
--------------------------------- ------- ------- -------
Ongoing sales - statutory period
(GBPm) 946 960 (1.5)
--------------------------------- ------- ------- -------
Pro forma branded sales (GBPm) 632 652 (3.2)
--------------------------------- ------- ------- -------
Pro forma ongoing sales (GBPm) 974 982 (0.9)
--------------------------------- ------- ------- -------
Branded market share - volume
(%) 32.5 33.3 (0.8)pp
--------------------------------- ------- ------- -------
Branded market share - value
(%) 30.9 32.4 (1.5)pp
--------------------------------- ------- ------- -------
Trading profit (GBPm) 67 94 (28.7)
--------------------------------- ------- ------- -------
Pro forma adjusted profit before
tax - ongoing business(GBPm) 13 23 (43.5)
--------------------------------- ------- ------- -------
Pro forma adjusted EPS - ongoing
business (pence) 0.4 0.7 (42.9)
--------------------------------- ------- ------- -------
Recurring cash flow from ongoing
business (GBPm) (38) (13) (192.3)
--------------------------------- ------- ------- -------
EBITDA (rolling 12 months) -
total group 323 354 (8.8)
--------------------------------- ------- ------- -------
Net debt (GBPm) 1,139 1,364 16.5
--------------------------------- ------- ------- -------
Average debt (rolling 12 months) 1,438 1,607 10.5
--------------------------------- ------- ------- -------
Trading Profit
2011 H1 2010 H1 11 v 10
GBPm GBPm %
------------------- ------- ------- -------
Sales 946 960 (1.5)
------------------- ------- ------- -------
Cost of sales (674) (647) (4.2)
------------------- ------- ------- -------
Gross profit 272 313 (13.1)
------------------- ------- ------- -------
Gross margin % 28.8 32.6 (3.8)pp
------------------- ------- ------- -------
Operating expenses (205) (219) 6.4
------------------- ------- ------- -------
Trading profit 67 94 (28.7)
------------------- ------- ------- -------
Trading profit declined by 28.7% to GBP67m. Trading profit was
affected by four major factors:
First, commodity costs increased by 14% year on year; equivalent
to a GBP150m increase in costs in a full year. Although we have
successfully repriced our products to reflect this, there was an
inevitable time lag before the prices took effect, which led to a
one-off cost of GBP15m in Q1.
Second, in addition, as a direct result of our successful
repricing exercise, one of our major customers delisted a
significant number of our Grocery lines. This cost Premier Foods
around GBP10m in Q2 but the issue has now been fully resolved and
the affected lines have been relisted.
Third, there was an unprecedented decline year on year in our
markets, with both the Grocery and Bread markets falling by 4%, due
to the depressed consumer environment exacerbated by unseasonably
warm weather. The consequent decline in volumes reduced profit in
both the Grocery and Hovis businesses.
Fourth, Brookes Avana recorded an GBP11m decline in profit year
on year in the first half. This includes a GBP4m charge for
restructuring in relation to asset write offs and redundancy costs
following the decision from Marks and Spencer to remove a
significant pie contract in stages over the next year.
In total, the year on year decline in profit caused by these
factors weighed more heavily on the earlier months of the first
half. Margins in Q2 improved as the new prices came into effect and
as our extensive cost efficiency programmes yielded positive
results. As a consequence, Q2 saw a substantial improvement in
trading results over Q1. Q2 also contained GBP14m of one-off
decline associated with the customer issue and the Brookes Avana
restructuring charge. Therefore, we have an improving trend as we
move into the second half.
The above factors were mitigated by a GBP11m credit from a
reduction in pension liabilities consequent on the closure of the
pension schemes.
Sales (Pro Forma Basis)
2011 H1 2010 H1 11 v 10
GBPm GBPm %
------------------------ ------- ------- -------
Branded 632 652 (3.2)
------------------------ ------- ------- -------
Non branded 342 330 3.8
------------------------ ------- ------- -------
Total sales 974 982 (0.9)
------------------------ ------- ------- -------
Total branded sales (%) 64.9 66.4 (1.5)pp
------------------------ ------- ------- -------
Total sales in the first half declined by 0.9% of which volumes
were down 4.9% with price and mix contributing 4.0%. Branded sales
in the Half Year were down 3.2% at GBP632m and now represent 64.9%
of total sales, down from 66.4% on 2010 H1.
In total, our promotional spend in H1 was down 2% on that spent
in H1 of 2010. During this period, the promotional intensity in the
market as a whole has increased by around 5%. We intend to increase
our promotional spend in H2 to increase volumes.
Sales were adversely affected by a temporary dispute with a
major customer which is now resolved.
Sales from new products introduced over the last two years were
5.7% of branded sales (2010: 6.0%) with good contributions from
Hovis Hearty Oats, Loyd Grossman for One and Ambrosia puds.
11 v 10 11 v 10
2011 H1 2010 H1 Sales Volume
Branded Sales - Pro forma GBPm GBPm % %
-------------------------- ------- ------- ------- -------
Hovis 182 174 5.0
-------------------------- ------- ------- ------- -------
Mr Kipling 59 62 (4.5)
-------------------------- ------- ------- ------- -------
Ambrosia 38 39 (3.8)
-------------------------- ------- ------- ------- -------
Sharwood's 32 32 (0.6)
-------------------------- ------- ------- ------- -------
Hartley's 28 27 2.7
-------------------------- ------- ------- ------- -------
Loyd Grossman 15 21 (29.6)
-------------------------- ------- ------- ------- -------
Sub total - Drive brands 354 355 (0.4) (5.0)
-------------------------- ------- ------- ------- -------
Batchelor's 45 50 (10.6)
-------------------------- ------- ------- ------- -------
Bisto 36 38 (3.9)
-------------------------- ------- ------- ------- -------
Branston 16 19 (14.9)
-------------------------- ------- ------- ------- -------
Cadbury Cakes 30 27 9.8
-------------------------- ------- ------- ------- -------
Oxo 14 18 (22.3)
-------------------------- ------- ------- ------- -------
Sub total - Core brands 141 152 (7.2) (9.5)
-------------------------- ------- ------- ------- -------
Defend brands 137 145 (5.9) (8.8)
-------------------------- ------- ------- ------- -------
Total branded 632 652 (3.2) (6.4)
-------------------------- ------- ------- ------- -------
Drive Brands
The Group saw a decrease in Drive brand sales of 0.4% in H1. In
volume, sales of Drive brands were down 5.0%. Within this, Hovis
volumes were down 2.7% in a market down 4.5%. Other brand volumes
were down 10.6%. In this period, market volumes in the categories
were down 4.2%.
Ambrosia, Sharwood's and Loyd Grossman sales were particularly
affected by the customer dispute. Loyd Grossman and Mr Kipling
sales in other customers were also affected by lower promotional
spend.
Core Brands
Core brands fell by 7.2%. Volumes were down 9.5%. Market volumes
fell 2.9% in these categories. Cadbury Cakes benefited from new
products and good promotions. Batchelors, Oxo and Branston sales
were particularly affected by the customer dispute. Batchelors was
also affected by competitor promotions and product launches.
Defend Brands
Defend brand sales declined by 5.9%. Sales volumes were down
8.8% against a market fall of 3.6%. The main declines were in
Homepride sauces as a result of the customer dispute and Lyons cake
owing to a loss of distribution. Saxa volumes were lower as a
result of warmer weather in January 2011 versus severe snowfall in
January 2010.
Non-Branded
2011 H1 2010 H1 11 v 10
Non-Branded Sales - Pro forma GBPm GBPm %
------------------------------ ------- ------- -------
Grocery 91 97 (6.3)
------------------------------ ------- ------- -------
Hovis 158 144 10.5
------------------------------ ------- ------- -------
Brookes Avana 93 89 3.9
------------------------------ ------- ------- -------
Total 342 330 3.8
------------------------------ ------- ------- -------
Non-branded sales comprise retailer brand and business to
business products including milling. In total, sales revenue was up
3.8%.
The Grocery business saw a reduction in non branded sales of
6.3% due to market decline and contract losses of table sauces and
jellies.
In Hovis, the increase in non branded sales revenue was 10.5%.
Baking revenue was down 9.0% reflecting market declines and some
own label contract losses. Milling revenue was up 31.3%. Volume was
up 1.0% with price inflation contributing the remainder.
In Brookes Avana, sales increased by 3.9% as a result of volumes
up 5.6%. Better pricing was offset by mix of contracts.
Gross Profit
2011 11 v 10
H1 2010 H1 %
------------------------------------ ------ -------- --------
Gross profit (GBPm) 272 313 (13.1)
------------------------------------ ------ -------- --------
Gross margin % 28.8 32.6 (3.8)pp
------------------------------------ ------ -------- --------
Gross margin movement (bp):
------------------------------------ ------ -------- --------
Effect of pricing recovering
cash margin (190)
------------------------------------ ------ -------- --------
Branded product mix, manufacturing
efficiency and procurement (20)
------------------------------------ ------ -------- --------
Commodity costs, pricing and
promotions (170)
------------------------------------ ------ -------- --------
Total change (bp) (380)
------------------------------------ ------ -------- --------
Gross margin fell by 380bp in H1 to 28.8%.
Price recovery aimed to recover the cash cost of the commodity
inflation. This has the effect of leaving gross profit unchanged
but increases turnover hence depressing the reported percentage
margin. This inflationary effect is equivalent to 190bp.
Lower manufacturing controllable costs, procurement efficiency
delivery were offset by a poorer branded sales mix. In total, this
reduced gross margin by 20bp.
Commodity costs, pricing and promotion reduced gross margin by
170bp. The decline relates to commodity inflation which was
unrecovered in Q1 offset by lower promotional costs year on
year.
Lower sales revenue and the lower gross margin left gross profit
down GBP41m at GBP272m.
Trading Operating Expenses
2010
2011 H1 H1 11 v
GBPm GBPm 10 %
--------------------------------- -------- ------ ------
Consumer and in-store marketing (36) (37) 2.7
--------------------------------- -------- ------ ------
Distribution (93) (98) 5.1
--------------------------------- -------- ------ ------
Support functions and corporate
costs (76) (84) 9.5
--------------------------------- -------- ------ ------
Trading operating expenses (205) (219) 6.4
--------------------------------- -------- ------ ------
Operating expenses were down GBP14m to GBP205m. Pension costs
were down GBP11m owing to past service credits. Restructuring costs
in the half year were GBP6m which is down GBP4m on last year. The
costs in the first half are in support of restructuring Hovis
supply chain.
Consumer and in-store marketing costs have been maintained at
around last year's level despite the difficult environment.
Distribution costs reduced by GBP5m or 5.1% in H1 due to lower
volumes and efficiency savings from both the Grocery and Hovis
businesses.
DIVISIONAL ANALYSIS
Grocery
2011 2010
H1 H1 11 v 10
GBPm GBPm %
------------------------------- ------ ------ --------
Branded sales 429 459 (6.5)
------------------------------- ------ ------ --------
Non branded sales 91 97 (6.3)
------------------------------- ------ ------ --------
Total sales (pro forma basis) 520 556 (6.5)
------------------------------- ------ ------ --------
Trading profit 72 81 (11.1)
------------------------------- ------ ------ --------
Volume market share % 22.0 23.4 (1.4)pp
------------------------------- ------ ------ --------
Value market share % 23.2 25.0 (1.8)pp
------------------------------- ------ ------ --------
The Grocery market has been dominated by commodity cost
inflation, subdued consumer demand and higher promotional
intensity.
Our priority was to achieve price increases to cover the 14%
inflation in commodity costs year on year. This has now been
achieved. As the pricing was effective from Q2, Q1 suffered a
stagger effect of the higher commodity costs.
In Q1, branded volumes were down 7.2% with price and mix
negative by 1.6%. In Q2, price and mix contributed 9.1% reflecting
the benefit of the new pricing. Volumes were, however, down 13.1%
owing to a temporary dispute with a major customer and lower
promotional spend. This matter has now been resolved.
Demand in the market was subdued throughout the period. Volumes
in our category markets were down 3.4% year on year. June was more
favourable with the market flat year on year.
Promotional intensity in the market was up 5% year on year from
32.0% in H1 2010 to 33.5% in H1 2011. However, our costs were down
2% as we concentrated on achieving pricing and as a result of the
dispute with a major customer.
As a consequence of these factors, our branded volumes were down
10.2% in the Half Year and market shares declined. As these matters
are behind us, we plan a stronger promotional programme for the
second half.
Grocery Trading Profit
GBPm
------------------------------------ -----
Trading profit - 2010 81
------------------------------------ -----
Volume / mix (22)
------------------------------------ -----
Procurement gains 11
------------------------------------ -----
Input costs / pricing / promotions (14)
------------------------------------ -----
Manufacturing efficiencies 4
------------------------------------ -----
Consumer and in-store marketing -
------------------------------------ -----
Restructuring costs 4
------------------------------------ -----
Pension costs 7
------------------------------------ -----
Other costs 1
------------------------------------ -----
Trading profit - 2011 72
------------------------------------ -----
Trading profit was down 11% to GBP72m owing to lower volumes and
higher commodity costs. These effects were partly offset by
efficiencies and lower pension costs.
The effect on profit of the 11.0% reduction in total volume was
mitigated by an improvement in mix as non branded sales volumes
fell faster than branded volumes. In total, volume and mix reduced
trading profit by GBP22m.
Procurement gains added GBP11m from a combination of reducing
the number of active suppliers and from working with suppliers to
achieve recipe and packaging efficiencies.
Input costs experienced significant inflation and pricing was
achieved in Q2 to offset these costs leaving a negative stagger.
Promotional costs were down year on year despite increased
promotional activity in the market. The combination of these
factors reduced profit by GBP14m.
Our strategy is to enhance gross margin by improving the
efficiency of the manufacturing operations by 4% per annum. In the
Half Year manufacturing controllable costs have reduced by 4% which
contributed GBP4m to profit by improving labour efficiencies and
reducing waste levels.
Other operating expenses were down GBP12m. Pension costs were
GBP7m lower as a result of closing our final salary pension
schemes. Restructuring costs were down GBP4m. Other SG&A costs
were down GBP1m.
Hovis
2011 2010 11 v
H1 H1 10
GBPm GBPm %
----------------------------------- ------ ------ --------
Branded bakery sales 190 183 4.0
----------------------------------- ------ ------ --------
Retailer brand bakery sales 67 74 (9.0)
----------------------------------- ------ ------ --------
Total bakery sales 257 257 0.2
----------------------------------- ------ ------ --------
Milling sales 104 80 29.2
----------------------------------- ------ ------ --------
Total sales (pro forma basis) 361 337 7.1
----------------------------------- ------ ------ --------
Trading profit 8 15 (46.7)
----------------------------------- ------ ------ --------
Hovis branded bread volume market
share % 25.4 25.2 0.2pp
----------------------------------- ------ ------ --------
Hovis branded bread value market
share % 25.1 25.3 (0.2)pp
----------------------------------- ------ ------ --------
Competition in the bread market, as previously indicated, has
increased during the first half of the year. Sales values for both
Bakery and Milling have increased year on year by inflation in the
cost of wheat. Hovis has increased its market share through
successful marketing and product innovation. The market is however
down 4.5% in volume year on year so, despite the growth in market
share, the volume of bread baked is down 6.3% year on year. In a
highly fixed cost business, this has reduced profitability. Margins
in Milling are lower as a result of new capacity entering the
market. Volumes have been maintained but at the expense of profit.
Consequently, profitability for Hovis is therefore down year on
year.
Hovis Trading Profit
GBPm
------------------------------ -----
Trading profit - 2010 15
------------------------------ -----
Volume / mix (6)
------------------------------ -----
Input costs / manufacturing
/ pricing / promotions (5)
------------------------------ -----
Distribution and other costs 4
------------------------------ -----
Trading profit - 2011 8
------------------------------ -----
The effect of the 6.3% fall in Bakery volumes was partially
offset by an improved mix of sales as Hovis branded bread was down
3.4% while non branded bread declined 13.3%. In total, the net
effect reduced trading profit by GBP6m.
Higher wheat prices and higher promotional activity were
partially offset by increased pricing although additional industry
capacity reduced prices in Milling. This reduced profit by
GBP5m.
Improved efficiency in distribution and overheads offset
inflation. Lower pension costs added GBP4m to trading profit.
Brookes Avana
2011
H1 2010 H1 11 v 10
GBPm GBPm %
------------------------------- ------ -------- --------
Total sales (pro forma basis) 93 89 3.9
------------------------------- ------ -------- --------
Trading loss (13) (2)
------------------------------- ------ -------- --------
Sales in Brookes Avana were up 3.9%. We have concluded our
pricing discussions with Marks and Spencer, our main customer. This
resulted in significant repricing at the start of Q2 as well as
certainty over future sales volumes over the medium term. This
entails some considerable churn in contracts. We have won more
business in Indian ready meals but have lost some Italian and
potato business and a pie contract worth GBP30m which will be
removed in stages over the next year. This requires us to
restructure the Leicester site. A charge of GBP4m is included for
redundancies and asset write-offs. We have secured new business
from other customers and have launched a number of branded
products. The majority of the new business wins are in our Welsh
sites. We continue to seek new business to replace the pie volume
in the Leicester site before the remainder of the contract is
lost.
Trading loss for the business was GBP13m, up GBP11m on the prior
year reflecting lower margins as a result of contract churn, the
three month delay in achieving pricing and the restructuring
provision. High contract churn and development of new customer
ranges adds inefficiency in the short-term. As a consequence, we
expect to continue to incur losses in the second half.
Meat-free and Canning
2011
H1 2010 H1 11 v 10
GBPm GBPm %
------------------------------- ------ -------- --------
Meat-free 21 66 (67.5)
------------------------------- ------ -------- --------
Canning 154 163 (5.3)
------------------------------- ------ -------- --------
Total sales (pro forma basis) 175 229 (23.2)
------------------------------- ------ -------- --------
Trading profit 8 16 (50.0)
------------------------------- ------ -------- --------
Cash flow from trading (13) 14
------------------------------- ------ -------- --------
Meat-free sales were GBP21m for the period until completion on 7
March 2011. The Canning business reported sales down 5.3% in line
with the market.
Trading profit for the two businesses was GBP8m, down from
GBP16m last year owing to the shorter period of ownership of
Meat-free and the decline in sales and higher raw material costs in
Canning.
Cash flow from the businesses in the Half Year was an outflow of
GBP13m. Trading profit was lower and stock and capital expenditure
was higher in 2011 in line with the plan agreed with Prince's.
Meat-free Canning
--------------------------- ------------- -------------
Completion date 7 March 2011 23 July 2011
--------------------------- ------------- -------------
Proceeds 205 182
--------------------------- ------------- -------------
Costs and working capital
adjustments (10) (15)
--------------------------- ------------- -------------
Cash flow from disposal 195 167
--------------------------- ------------- -------------
Loss on sale 14 5
--------------------------- ------------- -------------
The Meat-free business was sold on 7 March 2011. Proceeds were
GBP205m from which costs and working capital adjustments of GBP10m
were deducted. This generated a net cash inflow of GBP195m. This
cash flow was subject to agreeing completion accounts which has now
been done and will lead to a further GBP2m cash inflow in the
second half. The loss on sale recognised in H1 2011 is GBP14m.
Taking into account the impairment charge of GBP25m recognised in
2010 and the additional GBP2m of proceeds, the overall loss on
disposal is GBP37m.
The Canning business was sold on 23 July 2011. Proceeds were
GBP182m from which costs, dilapidations and working capital
adjustments of GBP15m were deducted. This is expected to generate a
GBP5m loss on sale and resulted in a net cash inflow of GBP167m.
This cash flow is subject to agreeing completion accounts which may
lead to a minor adjustment later in the year.
PLANS FOR H2
Cost saving programme
Now that the Canning sale is complete, we have the opportunity
to significantly simplify the business. The Logistics operation for
the Grocery business can be remodelled as Canning accounted for
half the volumes carried. The new supply chain will have smaller
warehouses located nearer to the remaining Grocery manufacturing
sites. This will entail some onerous lease costs and dilapidations
for the old warehouses, redundancy or relocation costs for the
affected people and set up costs for the new sites.
In addition, the Head Office can be reduced in size now that SAP
is in operation and that processes can be simplified now that
Meat-free and Canning operations are sold. This will entail onerous
lease costs for closing our Windsor offices, redundancy or
relocation costs for the affected people and systems costs for
changing and automating processes.
In total, the programme will reduce costs by GBP20m a year.
Access costs will be around GBP22m of which cash costs will be
around GBP18m. We anticipate the likely effect to be as
follows:
2011 2012 2013
GBPm GBPm GBPm
--------------------------- ------ ------ ------
Savings 2 15 20
--------------------------- ------ ------ ------
Access costs - accounting (12) (9) (1)
--------------------------- ------ ------ ------
Access costs - cash (4) (11) (3)
--------------------------- ------ ------ ------
Cashflow
We are also taking actions to defend recurring cash flows. We
are reducing the planned capital expenditure programme in 2011 and
are managing working capital. Our aim is to seek to mitigate the
effect of the fall in trading profit during the year which will
allow us to reduce net debt over the year.
OUTLOOK
Given the state of the economy and pressure on consumer
spending, we expect these slow market conditions to improve on the
first half but to continue to be down year on year in the second
half. We also expect promotional intensity to increase year on
year. Nevertheless, we have largely completed our repricing and
have succeeded in obtaining a strong promotional programme which
should help us resume taking market share.
Hovis trading should improve although the ongoing pressure on
Milling margins may lead to a small year on year decline in the
second half. The additional volumes and the benefits of
efficiencies should allow the Grocery business to show year on year
progress in the second half although it is unlikely that this will
offset the first half profit decline in full. The outlook is, as in
any year, dependent on the Christmas trading period.
FINANCIAL STRATEGY
Our financial strategy is:
-- to reduce Average debt / EBITDA to below 3.25 over the medium
term;
-- to reduce the financial risks; and
-- to diversify the sources and maturities of financing.
Reduce Average Debt / EBITDA To Below 3.25
The key objective is to manage down the financial indebtedness
as measured by Average debt to EBITDA ratio.
Jun Dec Jun
2011 2010 2010
------------------------------------ ------ ------ ------
Average bank borrowings - 12 month
rolling 1,348 1,439 1,517
------------------------------------ ------ ------ ------
Securitisation 90 90 90
------------------------------------ ------ ------ ------
Average debt 1,438 1,529 1,607
------------------------------------ ------ ------ ------
EBITDA - 12 month rolling 323 362 354
------------------------------------ ------ ------ ------
Average debt / EBITDA 4.45 4.22 4.54
------------------------------------ ------ ------ ------
The combination of recurring cash flow and the sale of the
Meat-free business have reduced average debt to GBP1,438m as at
June 2011. The ratio of average debt to EBITDA has fallen to 4.45,
down from 4.54 last year. On a proforma basis after disposals the
average debt would be GBP1,137m, EBITDA would be GBP284m and
average debt to EBITDA 4.00.
Reducing Financial Risk - Pensions
All defined benefit pension schemes have now been closed to new
starters who are now eligible to join a money purchase scheme. The
final salary schemes have now closed to future accrual and existing
members now contribute to a career average scheme. In this way, the
escalation of pension liabilities has been limited. As a result of
closing the schemes, the actuary has reassessed the liability
required for future pensionable salaries and for ill-health
retirement benefits. These have been harmonised between the schemes
and, as a result, a GBP12m release of liability is credited to
continuing trading profit in the Half Year of which GBP11m is in
the ongoing business.
During the H1, the actuarial valuation has been finalised. This
sets the deficit at GBP535m. As part of reaching this conclusion,
and as part of the agreement on security sharing, the company
agreed to additional contributions to compensate for asset
underperformance against the assumption in the last valuation. This
increases payments by a total of GBP16m: GBP6m in 2012 and GBP10m
in 2013. A schedule of contributions has been provisionally agreed
but is subject to affordability at the time. The contributions
beyond 2014 will, as a matter of course, be re-assessed once the
March 2013 valuation is completed. The full schedule of estimated
payments now agreed is as follows:
Deficit Payment
Year GBPm
---------- ----------------
2011 48
---------- ----------------
2012 47
---------- ----------------
2013 47
---------- ----------------
2014 51
---------- ----------------
2015 48
---------- ----------------
2016-2018 47 p.a.
---------- ----------------
2019-2021 45 p.a.
---------- ----------------
Diversify Sources and Maturities of Financing
The Group has agreed with the pension funds and the banks a new
agreement on the terms under which security can be shared with any
new providers of funds. We continue to discuss with our banks, the
terms under which a new bank deal could be arranged. We also
continue to monitor the bond market so we are in a position to
issue a bond should the opportunity present itself. The Group will
take steps at the appropriate time and as opportunities present
themselves to move to a new financial structure between now and
2013.
OTHER FINANCIAL INFORMATION
This section gives details of the Group's interest, earnings,
cash flow and its main financial obligations.
Interest
2011 H1 2010 H1 11 v 10
GBPm GBPm %
--------------------------------------- -------- -------- --------
Bank debt interest 22 31
--------------------------------------- -------- -------- --------
Securitisation interest 1 1
--------------------------------------- -------- -------- --------
Swap contract interest - conventional 29 26
--------------------------------------- -------- -------- --------
Amortisation and deferred fees 7 7
--------------------------------------- -------- -------- --------
Normal interest 59 65 9.2
--------------------------------------- -------- -------- --------
Swap contract - additional interest - 12
--------------------------------------- -------- -------- --------
Net regular interest cost 59 77 23.4
--------------------------------------- -------- -------- --------
Normal interest cost was GBP59m, down from GBP65m last year.
Interest on bank debt was lower reflecting lower debt level and
lower interest rates. Swap contract interest for hedging purposes
has increased GBP3m year on year.
The non-hedging portion of the swap portfolio resulted in an
additional interest of GBP12m from the digital swaps in 2010 as a
result of interest rates declining. This part of the portfolio was
restructured in H2 of 2010. As a result of the restructuring, the
additional interest has been incorporated into the swap rate and
hence is spread evenly through the period to the end of 2013.
Earnings Per Share
2011 11 v
H1 2010 H1 10
Earnings/(loss) per share GBPm GBPm %
-------------------------------------- ------ -------- -------
Basic EPS - continuing operations
-------------------------------------- ------ -------- -------
Profit/(loss) after tax - continuing
operations 2 (43) 104.7
-------------------------------------- ------ -------- -------
Basic EPS - continuing operations
(pence) 0.1 (1.8) -
-------------------------------------- ------ -------- -------
Pro forma adjusted EPS - ongoing
business
-------------------------------------- ------ -------- -------
Trading profit - ongoing business 67 94 (28.7)
-------------------------------------- ------ -------- -------
Pro forma net regular interest (54) (71) 23.9
-------------------------------------- ------ -------- -------
Notional tax at 26% (28%) (4) (6) 33.3
-------------------------------------- ------ -------- -------
Pro forma adjusted profit - ongoing
business 9 17 (47.1)
-------------------------------------- ------ -------- -------
Pro forma adjusted EPS - ongoing
business (pence) 0.4 0.7 (42.9)
-------------------------------------- ------ -------- -------
Average shares in issue (m) 2,398 2,398 -
-------------------------------------- ------ -------- -------
Cash Flow
2011
H1 2010 H1
GBPm GBPm
------------------------------------ ------ --------
Trading profit - ongoing business 67 94
------------------------------------ ------ --------
Depreciation 22 22
------------------------------------ ------ --------
Non cash pension (credit) / charge (1) 10
------------------------------------ ------ --------
Pension contributions (42) (38)
------------------------------------ ------ --------
Pro forma interest (41) (43)
------------------------------------ ------ --------
Tax - (1)
------------------------------------ ------ --------
Regular capital expenditure (30) (33)
------------------------------------ ------ --------
Working capital (16) (26)
------------------------------------ ------ --------
Other non cash items 3 2
------------------------------------ ------ --------
Recurring cash flow from ongoing
business (38) (13)
------------------------------------ ------ --------
The Group's cash flow from ongoing business before non-recurring
items was an outflow of GBP38m compared with an outflow of GBP13m
in H1 2010. The reduction in trading profit and increased pension
deficit payment was offset in part by lower capital expenditure and
working capital.
Interest paid was lower than last year reflecting the reduction
in debt and the swap restructuring completed in October 2010.
2011
H1 2010 H1
GBPm GBPm
------------------------------------- ------ --------
Recurring cash flow from ongoing
business (38) (13)
------------------------------------- ------ --------
Trading profit from disposed
businesses 8 16
------------------------------------- ------ --------
Other cash flow from disposed
businesses (21) (2)
------------------------------------- ------ --------
Recurring cash flow from total
group (before non-recurring items) (51) 1
------------------------------------- ------ --------
Exceptional items (excluding
financing fees) (2) (4)
------------------------------------- ------ --------
Net disposal proceeds 196 4
------------------------------------- ------ --------
One-off pension contribution
on disposal of Meat-free (1) -
------------------------------------- ------ --------
Settlement of finance leases
to permit disposal of Canning
business (18) -
------------------------------------- ------ --------
Financing fees, discontinued
operations and other non cash
items (2) (2)
------------------------------------- ------ --------
Reduction in net debt 122 (1)
------------------------------------- ------ --------
During the Half Year, various finance leases were settled in
order to be able to sell the assets of the Canning business. This
had no effect on overall financial obligations, it merely
transferred them to net debt. After this transfer, net debt fell by
GBP122m.
Net Debt
Jun Dec Jun
2011 2010 2010
GBPm GBPm GBPm
--------------------------- ------ ------ ------
Gross debt 1,156 1,282 1,379
--------------------------- ------ ------ ------
Deferred refinancing fees (17) (21) (15)
--------------------------- ------ ------ ------
Net debt - half year 1,139 1,261 1,364
--------------------------- ------ ------ ------
EBITDA - 12 month rolling 323 362 354
--------------------------- ------ ------ ------
Net debt / EBITDA 3.53 3.48 3.85
--------------------------- ------ ------ ------
The Group's net debt was GBP1,139m at the end of H1 2011 which
is GBP225m lower than in H1 2010.
Other Financial Obligations
Jun Dec Jun
2011 2010 2010
GBPm GBPm GBPm
------------------------------- ------ ------ ------
Finance lease obligations 1 19 1
------------------------------- ------ ------ ------
Financial instruments MTM 108 123 202
------------------------------- ------ ------ ------
Agreed swap settlements 112 112 40
------------------------------- ------ ------ ------
Pension deficit 273 321 431
------------------------------- ------ ------ ------
Other financial obligations -
gross of tax 494 575 674
------------------------------- ------ ------ ------
Other financial obligations -
net of tax 367 421 486
------------------------------- ------ ------ ------
Financial Instruments
Dec Jun
Jun 2011 2010 2010
GBPm GBPm GBPm
-------------------------------------- --------- ------ ------
Nominal value of derivative interest
rate related financial instruments 1,075 1,075 1,075
-------------------------------------- --------- ------ ------
Mark to market on interest rate
derivative financial instruments 108 123 202
-------------------------------------- --------- ------ ------
Agreed settlement amounts on
restructured swaps 112 112 40
-------------------------------------- --------- ------ ------
The agreed swap settlements are due: GBP33m in 2012 and GBP79m
in 2013. In the event of a bond issue, the GBP33m and GBP20m of the
2013 settlement is due to be settled from proceeds. The remainder
is due in 2013.
Pensions
Total cash paid to the pension funds including deficit funding
in 2011 will be approximately GBP77m. This comprises regular
contributions of GBP29m and deficit funding of GBP48m. In the Half
Year, the total cash contributions were GBP43m compared with GBP38m
in 2010. Service costs credited to profit and loss were GBP2m,
compared with a charge of GBP9m in 2010 as a result of GBP12m of
past service credits. At 25 June 2011, the deficit was calculated
to be GBP273m on an IAS19 basis, equivalent to GBP203m net of
deferred tax.
Jun Dec
2011 2010 Jun 2010
Pensions GBPm GBPm GBPm
------------------------ -------- -------- ---------
Liabilities (3,145) (3,120) (3,075)
------------------------ -------- -------- ---------
Discount rate 5.45% 5.45% 5.50%
------------------------ -------- -------- ---------
Inflation rate 3.50% 3.45% 3.30%
------------------------ -------- -------- ---------
Assets
------------------------ -------- -------- ---------
Equities 509 588 624
------------------------ -------- -------- ---------
Bonds 462 445 412
------------------------ -------- -------- ---------
Property 136 122 167
------------------------ -------- -------- ---------
Absolute return 626 567 552
------------------------ -------- -------- ---------
Cash & other 1,048 996 838
------------------------ -------- -------- ---------
Swaps 91 81 51
------------------------ -------- -------- ---------
Total assets 2,872 2,799 2,644
------------------------ -------- -------- ---------
Gross deficit (IAS 19) (273) (321) (431)
------------------------ -------- -------- ---------
Deferred tax 70 89 119
------------------------ -------- -------- ---------
Net deficit (IAS 19) (203) (232) (312)
------------------------ -------- -------- ---------
Debt Covenants
The position against the banking covenants is as follows:
H1 H1
Covenant headroom 2011 2010
-------------------------- ------ ------
Covenant indebtedness 1,131 1,366
-------------------------- ------ ------
Leverage covenant EBITDA 313 364
-------------------------- ------ ------
Covenant interest 110 138
-------------------------- ------ ------
Interest covenant EBITDA 326 364
-------------------------- ------ ------
Covenant tests:
-------------------------- ------ ------
Leverage test 3.61 3.75
-------------------------- ------ ------
Maximum limit 4.25 4.50
-------------------------- ------ ------
Headroom 15% 17%
-------------------------- ------ ------
Interest cover test 2.96 2.64
-------------------------- ------ ------
Minimum limit 2.55 2.25
-------------------------- ------ ------
Headroom 16% 17%
-------------------------- ------ ------
In calculating the EBITDA for covenant purposes, the trading
EBITDA is adjusted for share based payments, securitisation
interest and one off restructuring costs. The EBITDA for interest
covenant purposes also includes EBITDA from the Meat-free and
Canning businesses. The maximum leverage ratio for year end 2011 is
3.90 and the minimum interest cover limit is 2.75.
The natural headroom from the Group's underlying trading and
cash generation characteristics is reduced in the short term by
additional interest from the swap portfolio which was not envisaged
when the covenant limits were set. This has reduced interest
covenant headroom by 8pp. In recognition of this, as part of the
restructuring of the swap portfolio, the Group has agreed with its
banks to reset the interest covenant headroom. This will come into
operation when a bond is issued. In addition, given the low
interest rates on bank debt, the sale of businesses at deleveraging
proceeds further tightens the interest covenant while it improves
the debt covenant.
To illustrate this, on a proforma basis, disposals would have
reduced headroom on the interest covenant by a further 5pp owing to
fees and swap settlements while it would have added 6pp to the debt
covenant headroom. The disposals are approved by our lending banks
who are aware of the effect on the interest covenant. On issuing a
bond, the interest covenant headroom would be increased by 11pp
while the leverage covenant headroom would fall by 5pp.
The Group will not be deflected from further disposals if they
provide deleveraging proceeds regardless of the technical effects
on the interest covenant.
APPENDICES
1. Reported Sales Analysis (to 25 June 2011)
Branded Non Branded Total
Sales Analysis 2011 H1 GBPm GBPm GBPm
--------------------------- -------- ------------ ------
Grocery 417 88 505
--------------------------- -------- ------------ ------
Hovis
--------------------------- -------- ------------ ------
Bakery 184 66 250
--------------------------- -------- ------------ ------
Milling 12 89 101
--------------------------- -------- ------------ ------
Total Hovis 196 155 351
--------------------------- -------- ------------ ------
Brookes Avana - 90 90
--------------------------- -------- ------------ ------
Total ongoing business 613 333 946
--------------------------- -------- ------------ ------
Canning 59 90 149
--------------------------- -------- ------------ ------
Total continuing business 672 423 1,095
--------------------------- -------- ------------ ------
Meat free 21 - 21
--------------------------- -------- ------------ ------
Total group 693 423 1,116
--------------------------- -------- ------------ ------
Branded Non Branded Total
Sales Analysis 2010 H1 GBPm GBPm GBPm
--------------------------- -------- ------------ ------
Grocery 448 95 543
--------------------------- -------- ------------ ------
Hovis
--------------------------- -------- ------------ ------
Bakery 179 73 252
--------------------------- -------- ------------ ------
Milling 10 68 78
--------------------------- -------- ------------ ------
Total Hovis 189 141 330
--------------------------- -------- ------------ ------
Brookes Avana - 87 87
--------------------------- -------- ------------ ------
Total ongoing business 637 323 960
--------------------------- -------- ------------ ------
Canning 70 89 159
--------------------------- -------- ------------ ------
Total continuing business 707 412 1,119
--------------------------- -------- ------------ ------
Meat free 64 - 64
--------------------------- -------- ------------ ------
Total group 771 412 1,183
--------------------------- -------- ------------ ------
2. Pro forma Sales Analysis (to 30 June)
Branded Non Branded Total
Pro forma Sales Analysis 2011 H1 GBPm GBPm GBPm
---------------------------------- -------- ------------ ------
Grocery 429 91 520
---------------------------------- -------- ------------ ------
Hovis
---------------------------------- -------- ------------ ------
Bakery 190 67 257
---------------------------------- -------- ------------ ------
Milling 13 91 104
---------------------------------- -------- ------------ ------
Total Hovis 203 158 361
---------------------------------- -------- ------------ ------
Brookes Avana - 93 93
---------------------------------- -------- ------------ ------
Total ongoing business 632 342 974
---------------------------------- -------- ------------ ------
Meat free 21 - 21
---------------------------------- -------- ------------ ------
Canning 61 93 154
---------------------------------- -------- ------------ ------
Total group 714 435 1,149
---------------------------------- -------- ------------ ------
Branded Non Branded Total
Pro forma Sales Analysis 2010 H1 GBPm GBPm GBPm
---------------------------------- -------- ------------ ------
Grocery 459 97 556
---------------------------------- -------- ------------ ------
Hovis
---------------------------------- -------- ------------ ------
Bakery 183 74 257
---------------------------------- -------- ------------ ------
Milling 10 70 80
---------------------------------- -------- ------------ ------
Total Hovis 193 144 337
---------------------------------- -------- ------------ ------
Brookes Avana - 89 89
---------------------------------- -------- ------------ ------
Total ongoing business 652 330 982
---------------------------------- -------- ------------ ------
Meat free 66 - 66
---------------------------------- -------- ------------ ------
Canning 72 91 163
---------------------------------- -------- ------------ ------
Total group 790 421 1,211
---------------------------------- -------- ------------ ------
3. Group P&L
Continuing
2011 H1 Ongoing business Canning business
------------------------------------ ----------------- -------- -----------
GBPm GBPm GBPm
------------------------------------ ----------------- -------- -----------
Sales 945.5 149.3 1,094.8
------------------------------------ ----------------- -------- -----------
Cost of sales (674.0) (134.0) (808.0)
------------------------------------ ----------------- -------- -----------
Gross margin 271.5 15.3 286.8
------------------------------------ ----------------- -------- -----------
Gross margin % 28.7% 10.2% 26.2%
------------------------------------ ----------------- -------- -----------
Trading operating expenses (204.7) (7.8) (212.5)
------------------------------------ ----------------- -------- -----------
Trading profit 66.8 7.5 74.3
------------------------------------ ----------------- -------- -----------
Pensions financing credit 9.2
------------------------------------ -----------
Amortisation of intangible assets (42.4)
------------------------------------ -----------
Fair value movements on foreign
exchange and other derivative
contracts 1.3
------------------------------------ -----------
Operating profit 42.4
------------------------------------ -----------
Interest & financing costs (45.5)
------------------------------------ -----------
Loss before taxation for continuing
operations (3.1)
------------------------------------ -----------
Taxation 5.6
------------------------------------ -----------
Profit after taxation for
continuing operations 2.5
------------------------------------ -----------
Discontinued operations (14.2)
------------------------------------ -----------
Loss for the period (11.7)
------------------------------------ ----------------- -------- -----------
Continuing
2010 H1 Ongoing business Canning business
------------------------------------ ----------------- -------- -----------
GBPm GBPm GBPm
------------------------------------ ----------------- -------- -----------
Sales 960.0 159.2 1,119.2
------------------------------------ ----------------- -------- -----------
Cost of sales (647.4) (137.1) (784.5)
------------------------------------ ----------------- -------- -----------
Gross margin 312.6 22.1 334.7
------------------------------------ ----------------- -------- -----------
Gross margin % 32.6% 13.9% 29.9%
------------------------------------ ----------------- -------- -----------
Trading operating expenses (218.8) (11.2) (230.0)
------------------------------------ ----------------- -------- -----------
Trading profit 93.8 10.9 104.7
------------------------------------ ----------------- -------- -----------
Pensions financing credit 2.0
------------------------------------ -----------
Amortisation of intangible assets (39.5)
------------------------------------ -----------
Fair value movements on foreign
exchange and other derivative
contracts (4.2)
------------------------------------ -----------
Operating profit 63.0
------------------------------------ -----------
Interest & financing costs (121.1)
------------------------------------ -----------
Loss before taxation for continuing
operations (58.1)
------------------------------------ -----------
Taxation 15.0
------------------------------------ -----------
Loss after taxation for continuing
operations (43.1)
------------------------------------ -----------
Discontinued operations 2.8
------------------------------------ -----------
Loss for the period (40.3)
------------------------------------ ----------------- -------- -----------
4. Pro forma adjusted earnings/(loss) per share
Ongoing Canning Continuing Discontinued Total
business business business operations Group
H1 2011 GBPm GBPm GBPm GBPm GBPm
----------------- ---------- ---------- ----------- ------------- -------
Trading profit 66.8 7.5 74.3 0.3 74.6
----------------- ---------- ---------- ----------- ------------- -------
Less pro forma
net regular
interest (54.2) (2.8) (57.0) (2.3) (59.3)
----------------- ---------- ---------- ----------- ------------- -------
Pro forma
adjusted profit
before tax 12.6 4.7 17.3 (2.0) 15.3
----------------- ---------- ---------- ----------- ------------- -------
Notional tax at
26.0% (3.3) (1.2) (4.5) 0.5 (4.0)
----------------- ---------- ---------- ----------- ------------- -------
Pro forma
adjusted profit
after tax 9.3 3.5 12.8 (1.5) 11.3
----------------- ---------- ---------- ----------- ------------- -------
Weighted average
number of
shares 2,398 2,398 2,398 2,398 2,398
----------------- ---------- ---------- ----------- ------------- -------
Pro forma
adjusted EPS
(pence) 0.39 0.14 0.53 (0.06) 0.47
----------------- ---------- ---------- ----------- ------------- -------
Pro forma net
regular
interest
----------------- ---------- ---------- ----------- ------------- -------
Pro forma net
interest
payable 40.4 2.8 43.2 2.3 45.5
----------------- ---------- ---------- ----------- ------------- -------
Less exceptional
write-off of
financing
costs (0.4) - (0.4) - (0.4)
----------------- ---------- ---------- ----------- ------------- -------
Less fair value
adjustments on
interest rate
financial
instruments 14.4 - 14.4 - 14.4
----------------- ---------- ---------- ----------- ------------- -------
Less unwind of
discount on
provisions (0.2) - (0.2) - (0.2)
----------------- ---------- ---------- ----------- ------------- -------
Pro forma net
regular
interest 54.2 2.8 57.0 2.3 59.3
----------------- ---------- ---------- ----------- ------------- -------
Ongoing Canning Continuing Discontinued Total
business business business operations Group
H1 2010 GBPm GBPm GBPm GBPm GBPm
----------------- ---------- ---------- ----------- ------------- -------
Trading profit 93.8 10.9 104.7 5.1 109.8
----------------- ---------- ---------- ----------- ------------- -------
Less pro forma
net regular
interest (71.1) (3.1) (74.2) (3.1) (77.3)
----------------- ---------- ---------- ----------- ------------- -------
Pro forma
adjusted profit
before tax 22.7 7.8 30.5 2.0 32.5
----------------- ---------- ---------- ----------- ------------- -------
Notional tax at
28.0% (6.3) (2.2) (8.5) (0.6) (9.1)
----------------- ---------- ---------- ----------- ------------- -------
Pro forma
adjusted profit
after tax 16.4 5.6 22.0 1.4 23.4
----------------- ---------- ---------- ----------- ------------- -------
Weighted average
number of
shares 2,398 2,398 2,398 2,398 2,398
----------------- ---------- ---------- ----------- ------------- -------
Pro forma
adjusted EPS
(pence) 0.68 0.23 0.91 0.07 0.98
----------------- ---------- ---------- ----------- ------------- -------
Pro forma net
regular
interest
----------------- ---------- ---------- ----------- ------------- -------
Pro forma net
interest
payable 114.7 3.1 117.8 3.3 121.1
----------------- ---------- ---------- ----------- ------------- -------
Less exceptional
write-off of
financing
costs - - - (0.2) (0.2)
----------------- ---------- ---------- ----------- ------------- -------
Less fair value
adjustments on
interest rate
financial
instruments (42.8) - (42.8) - (42.8)
----------------- ---------- ---------- ----------- ------------- -------
Less unwind of
discount on
provisions (0.8) - (0.8) - (0.8)
----------------- ---------- ---------- ----------- ------------- -------
Pro forma net
regular
interest 71.1 3.1 74.2 3.1 77.3
----------------- ---------- ---------- ----------- ------------- -------
5. Pro forma cash flow reconciliation
Total Total
2011 Ongoing Canning Continuing Discontinued Group
-------------------- ------- ------- --------------- ------------ -------
Continuing
operations
-------------------- ------- ------- --------------- ------------ -------
Trading profit 66.8 7.5 74.3 0.3 74.6
-------------------- ------- ------- --------------- ------------ -------
Amortisation (42.4) - (42.4) - (42.4)
-------------------- ------- ------- --------------- ------------ -------
Loss on the sale of
Meat-free - - - (14.4) (14.4)
-------------------- ------- ------- --------------- ------------ -------
Revaluation
losses/(gains) on
financial
instruments 1.3 - 1.3 - 1.3
-------------------- ------- ------- --------------- ------------ -------
Pension financing
credit on
retirement benefit
obligations 9.2 - 9.2 - 9.2
-------------------- ------- ------- --------------- ------------ -------
Operating
profit/(loss) 34.9 7.5 42.4 (14.1) 28.3
-------------------- ------- ------- --------------- ------------ -------
Depreciation of
property, plant and
equipment 21.8 - 21.8 - 21.8
-------------------- ------- ------- --------------- ------------ -------
Amortisation of
intangible assets 42.4 - 42.4 - 42.4
-------------------- ------- ------- --------------- ------------ -------
Loss on the sale of
Meat-free - - - 14.4 14.4
-------------------- ------- ------- --------------- ------------ -------
(Gain) on disposal
of intangible
assets (0.2) - (0.2) - (0.2)
-------------------- ------- ------- --------------- ------------ -------
Revaluation
losses/(gains) on
financial
instruments (1.3) - (1.3) - (1.3)
-------------------- ------- ------- --------------- ------------ -------
Share based payments 2.6 - 2.6 - 2.6
-------------------- ------- ------- --------------- ------------ -------
Net cash inflow from
operating
activities before
interest and tax
and movements in
working capital 100.2 7.5 107.7 0.3 108.0
-------------------- ------- ------- --------------- ------------ -------
Net working capital (16.0) (3.7) (19.7) (5.7) (25.4)
-------------------- ------- ------- --------------- ------------ -------
Movement in net
retirement benefit
obligations (52.2) (1.4) (53.6) (1.1) (54.7)
-------------------- ------- ------- --------------- ------------ -------
Cash
generated/(outflow)
from continuing
operations 32.0 2.4 34.4 -
-------------------- ------- ------- --------------- ------------ -------
Discontinued
operations - - - (6.5)
-------------------- ------- ------- --------------- ------------ -------
Cash
(outflow)/generated
from operating
activities 32.0 2.4 34.4 (6.5) 27.9
-------------------- ------- ------- --------------- ------------ -------
Exceptional cashflow (1.5)
Cash
(outflow)/generated
from operating
activities 32.0 2.4 34.4 (6.5) 27.9
-------------------- ------- ------- --------------- ------------ -------
Net interest payable (41.1) (2.7) (43.8) (2.3) (46.1)
-------------------- ------- ------- --------------- ------------ -------
Cash
(outflow)/inflow
from operating
activities (9.1) (0.3) (9.4) (8.8) (18.2)
-------------------- ------- ------- --------------- ------------ -------
Proceeds from sale
of subsidiaries - - - 194.9 194.9
-------------------- ------- ------- --------------- ------------ -------
Purchase of
property, plant and
equipment (29.6) (2.8) (32.4) (1.0) (33.4)
-------------------- ------- ------- --------------- ------------ -------
Sale of property,
plant and
equipment 1.0 - 1.0 1.0
-------------------- ------- ------- --------------- ------------ -------
Cash outflow from
investing
activities (28.6) (2.8) (31.4) 193.9 162.5
-------------------- ------- ------- --------------- ------------ -------
Repayment of
borrowings (194.9)
-------------------- ------- ------- --------------- ------------ -------
Proceeds
from/(repayment of)
borrowings 193.5
-------------------- ------- ------- --------------- ------------ -------
Cash inflow from
financing
activities (1.4)
-------------------- ------- ------- --------------- ------------ -------
Net (outflow)/inflow
of cash and cash
equivalents 142.9
-------------------- ------- ------- --------------- ------------ -------
Cash and cash
equivalents at
beginning of
period (28.7)
-------------------- ------- ------- --------------- ------------ -------
Effect of movement
in foreign
exchange 0.1
-------------------- ------- ------- --------------- ------------ -------
Cash and cash
equivalents at end
of period 114.3
-------------------- ------- ------- --------------- ------------ -------
5. Pro forma cash flow reconciliation (continued)
Total
2010 Ongoing Canning Total Continuing Discontinued Group
-------------------- ------- ------- ---------------- ------------ ------
Continuing
operations
-------------------- ------- ------- ---------------- ------------ ------
Trading profit 93.8 10.9 104.7 5.1 109.8
-------------------- ------- ------- ---------------- ------------ ------
Amortisation (39.4) (0.1) (39.5) (1.7) (41.2)
-------------------- ------- ------- ---------------- ------------ ------
Loss on the sale of
Meat-free - - - 0.1 0.1
-------------------- ------- ------- ---------------- ------------ ------
Revaluation
losses/(gains) on
financial
instruments (4.2) - (4.2) - (4.2)
-------------------- ------- ------- ---------------- ------------ ------
Pension financing
credit on
retirement benefit
obligations 2.0 - 2.0 - 2.0
-------------------- ------- ------- ---------------- ------------ ------
Operating
profit/(loss) 52.2 10.8 63.0 3.5 66.5
-------------------- ------- ------- ---------------- ------------ ------
Depreciation of
property, plant and
equipment 21.7 1.9 23.6 1.8 25.4
-------------------- ------- ------- ---------------- ------------ ------
Amortisation of
intangible assets 39.4 0.1 39.5 1.7 41.2
-------------------- ------- ------- ---------------- ------------ ------
(Gain) on disposal
of intangible
assets 0.3 - 0.3 - 0.3
-------------------- ------- ------- ---------------- ------------ ------
Revaluation
losses/(gains) on
financial
instruments 4.2 - 4.2 - 4.2
-------------------- ------- ------- ---------------- ------------ ------
Share based payments 2.8 - 2.8 - 2.8
-------------------- ------- ------- ---------------- ------------ ------
Net cash inflow from
operating
activities before
interest and tax
and movements in
working capital 120.6 12.8 133.4 7.0 140.4
-------------------- ------- ------- ---------------- ------------ ------
Net working capital (29.3) 1.2 (28.1) 0.3 (27.8)
-------------------- ------- ------- ---------------- ------------ ------
Movement in net
retirement benefit
obligations (29.7) - (29.7) - (29.7)
-------------------- ------- ------- ---------------- ------------ ------
Cash
generated/(outflow)
from continuing
operations 61.6 14.0 75.6 -
-------------------- ------- ------- ---------------- ------------ ------
Discontinued
operations - - - 7.3
-------------------- ------- ------- ---------------- ------------ ------
Cash
(outflow)/generated
from operating
activities 61.6 14.0 75.6 7.3 82.9
-------------------- ------- ------- ---------------- ------------ ------
Exceptional cash
flow included in
working capital (3.8)
Cash
(outflow)/generated
from operating
activities 61.6 14.0 75.6 7.3 82.9
-------------------- ------- ------- ---------------- ------------ ------
Net interest payable (43.1) (3.1) (46.2) (3.3) (49.5)
-------------------- ------- ------- ---------------- ------------ ------
Taxation
(paid)/received (1.3) - (1.3) - (1.3)
-------------------- ------- ------- ---------------- ------------ ------
Cash inflow from
operating
activities 17.2 10.9 28.1 4.0 32.1
-------------------- ------- ------- ---------------- ------------ ------
Purchase of
property, plant and
equipment (33.5) (0.3) (33.8) (0.7) (34.5)
-------------------- ------- ------- ---------------- ------------ ------
Sale of property,
plant and
equipment 4.2 - 4.2 - 4.2
-------------------- ------- ------- ---------------- ------------ ------
Cash outflow from
investing
activities (29.3) (0.3) (29.6) (0.7) (30.3)
-------------------- ------- ------- ---------------- ------------ ------
Cash inflow from
financing
activities 3.6
-------------------- ------- ------- ---------------- ------------ ------
Net (outflow)/inflow
of cash and cash
equivalents 5.4
-------------------- ------- ------- ---------------- ------------ ------
Cash and cash
equivalents at
beginning of
period (15.1)
-------------------- ------- ------- ---------------- ------------ ------
Effect of movement
in foreign
exchange (0.7)
-------------------- ------- ------- ---------------- ------------ ------
Cash and cash
equivalents at end
of period (10.4)
-------------------- ------- ------- ---------------- ------------ ------
The Directors confirm to the best of their knowledge that this
condensed consolidated interim financial information has been
prepared in accordance with IAS 34, Interim Financial Reporting as
adopted by the European Union, and that the interim management
report herein includes a fair review of the information required by
the Disclosure and Transparency Rules ("DTR") 4.2.7 and DTR 4.2.8
namely:
-- an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial information, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
-- material related party transactions in the first six months
and any material changes in the related party transactions
described in the last annual report.
The Directors of Premier Foods plc are listed in the Premier
Foods plc annual report and accounts for the year ended 31 December
2010. Since that date Mr David Wild was appointed non-executive
director with effect from 7 March 2011 and Mr David Felwick retired
as a senior independent director on 28 April 2011.
By order of the Board
4 August 2011
Robert Schofield Jim Smart
Chief Executive Officer Chief Financial Officer
Independent review report to Premier Foods plc
Introduction
We have been engaged by the Company to review the condensed
consolidated set of financial information in the half-yearly
financial report for the six months ended 25 June 2011, which
comprises the Consolidated income statement, Consolidated statement
of comprehensive income, Consolidated balance sheet, Consolidated
statement of cash flows, Consolidated statement of changes in
equity and related notes. We have read the other information
contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial information.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial information included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial information in the half-yearly
financial report based on our review. This report, including the
conclusion, has been prepared for and only for the Company for the
purpose of the Disclosure and Transparency 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.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial
information in the half-yearly financial report for the six months
ended 25 June 2011 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
London
Chartered Accountants 4 August 2011
Notes
(a) The maintenance and integrity of the Premier Foods plc
website 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 financial information since
they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Premier Foods plc
Consolidated income statement (unaudited)
------------------------------------------------------------------
Half year Half year Year
ended ended ended
25 Jun 26 Jun 31 Dec
2011 2010 2010
(Restated)(1)
Note GBPm GBPm GBPm
------------------------------- ----- ---------- -------------- ----------
Continuing operations
Revenue 4 1,094.8 1,119.2 2,438.0
Cost of sales (808.0) (784.5) (1,690.9)
------------------------------- ----- ---------- -------------- ----------
Gross profit 286.8 334.7 747.1
Selling, marketing and
distribution costs (151.3) (160.3) (314.6)
Administrative costs (93.8) (106.2) (341.3)
Net other operating income/
(expense) 5 0.7 (5.2) 1.9
------------------------------- ----- ---------- -------------- ----------
Operating profit 4 42.4 63.0 93.1
Before exceptional items 42.4 63.0 218.1
Impairment of goodwill 6 - - (125.0)
---------- -------------- ----------
Interest payable and other
financial charges 7 (63.5) (83.3) (160.1)
Interest receivable and other
financial income 7 3.6 5.0 12.0
Net movement on fair valuation
of interest rate financial
instruments 7 14.4 (42.8) (43.3)
------------------------------- ----- ---------- -------------- ----------
Loss before taxation for
continuing operations (3.1) (58.1) (98.3)
Taxation credit 8 5.6 15.0 11.6
------------------------------- ----- ---------- -------------- ----------
Profit/(loss) after taxation for
continuing operations 2.5 (43.1) (86.7)
(Loss)/profit from
discontinued operations 9 (14.2) 2.8 (12.6)
------------------------------- ----- ---------- -------------- ----------
Loss for the period
attributable to equity
shareholders (11.7) (40.3) (99.3)
------------------------------- ----- ---------- -------------- ----------
Basic and diluted (loss) per
share (pence) (0.5) (1.7) (4.1)
Basic and diluted earnings/(loss) per
share (pence) - continuing 0.1 (1.8) (3.6)
Basic and diluted (loss)/earnings per
share (pence) - discontinued (0.6) 0.1 (0.5)
Adjusted earnings per share (pence)
(2) 0.5 1.0 5.0
-------------------------------------- ---------- -------------- ----------
(1) Comparatives have been restated to reflect the Meat- free
business as a discontinued operation
(2) Adjusted earnings per share is defined as trading profit less
net regular interest payable, less a notional tax charge at 26%
(2010: 28%) divided by the weighted average number of ordinary
shares of the company.
Consolidated statement of comprehensive income (unaudited)
------------------------------------------------------------------------------
Half
year Half year Year
ended ended ended
25 Jun 26 Jun 31 Dec
2011 2010 2010
Note GBPm GBPm GBPm
----------------------------------------- ----- ------- ---------- -------
Loss for the period (11.7) (40.3) (99.3)
Other comprehensive income
Actuarial (losses)/gains on pensions 12 (6.9) (32.6) 46.4
Deferred tax credit/(charge) on
actuarial losses/gains on pensions - 9.1 (29.9)
Exchange differences on translation 1.3 (0.2) (0.3)
Fair value movement on net investment
hedge - 1.4 0.8
----------------------------------------- ----- ------- ---------- -------
Total other comprehensive
(losses)/income for the period (5.6) (22.3) 17.0
Total comprehensive losses attributable
to owners of the Company (17.3) (62.6) (82.3)
----------------------------------------- ----- ------- ---------- -------
Consolidated balance sheet
(unaudited)
----------------------------------- ----- ---------- ----------
As at As at As at
25 Jun 26 Jun 31 Dec
2011 2010 2010
Note GBPm GBPm GBPm
----------------------------------- ----- ---------- ---------- ----------
ASSETS:
Non-current assets
Property, plant and equipment 530.0 620.8 538.6
Goodwill 1,096.1 1,371.3 1,096.1
Other intangible assets 922.5 1,078.5 963.7
Retirement benefit assets 12 0.4 - -
----------
Total non-current assets 2,549.0 3,070.6 2,598.4
Current assets
Assets held for sale 11 166.1 - 406.3
Inventories 160.3 216.6 135.2
Trade and other receivables 308.4 320.1 356.3
Financial assets - derivative
financial instruments 1.8 7.2 1.4
Cash and cash equivalents 115.9 20.7 1.9
Total current assets 752.5 564.6 901.1
----------------------------------- ----- ---------- ---------- ----------
Total assets 3,301.5 3,635.2 3,499.5
----------------------------------- ----- ---------- ---------- ----------
LIABILITIES:
Current liabilities
Trade and other payables (444.9) (425.4) (496.2)
Financial liabilities
- short term borrowings (121.7) (173.0) (190.1)
- derivative financial instruments (20.8) (210.4) (29.6)
- other financial liabilities at
fair value through profit or
loss (199.8) (40.5) (206.3)
Accrued interest payable (19.7) (35.8) (12.3)
Provisions (11.0) (16.0) (10.5)
Current income tax liabilities (2.5) (1.3) (2.0)
Liabilities held for sale 11 - - (48.8)
----------
Total current liabilities (820.4) (902.4) (995.8)
Non-current liabilities
Financial liabilities
- long term borrowings (1,133.9) (1,213.1) (1,091.8)
Retirement benefit obligations 12 (273.7) (430.6) (320.9)
Provisions (28.7) (29.2) (28.4)
Other liabilities (20.2) (13.6) (17.0)
Deferred tax liabilities (49.7) (41.3) (56.1)
Total non-current liabilities (1,506.2) (1,727.8) (1,514.2)
----------------------------------- ----- ---------- ---------- ----------
Total liabilities (2,326.6) (2,630.2) (2,510.0)
----------------------------------- ----- ---------- ---------- ----------
Net assets 974.9 1,005.0 989.5
----------------------------------- ----- ---------- ---------- ----------
EQUITY:
Capital and reserves
Share capital 24.0 24.0 24.0
Share premium 1,124.7 1,124.7 1,124.7
Merger reserve 890.7 890.7 890.7
Other reserves (9.3) (8.7) (9.3)
Profit and loss reserve (1,055.3) (1,025.8) (1,040.7)
-----------------------------------
Capital and reserves attributable
to the Company's equity
shareholders 974.8 1,004.9 989.4
Non-controlling interest 0.1 0.1 0.1
----------
Total shareholders' funds 974.9 1,005.0 989.5
----------------------------------- ----- ---------- ---------- ----------
Consolidated statement of cash flows (unaudited)
------------------------------------------------------------------------------
Half Half
year year Year
ended ended ended
25 Jun 26 Jun 31 Dec
2011 2010 2010
Note GBPm GBPm GBPm
------------------------------------------ -------- ------- --------
Cash generated from operating activities 13 27.9 82.9 313.2
Interest paid (48.7) (53.4) (143.5)
Interest received 2.6 3.9 12.5
Taxation paid - (1.3) (1.7)
-------- ------- --------
Cash (outflow)/inflow from operating
activities (18.2) 32.1 180.5
Sale of subsidiaries 194.9 - -
Purchase of property, plant and
equipment (31.3) (19.1) (51.1)
Purchase of intangible assets (2.1) (15.4) (16.6)
Sale of property, plant and equipment 1.0 4.2 5.2
Sale of intangible assets - - 3.9
-------- ------- --------
Cash inflow/(outflow) from investing
activities 162.5 (30.3) (58.6)
Repayment of borrowings (194.9) - (116.2)
Proceeds from borrowings 193.5 3.6 -
Financing costs - - (18.8)
-------- ------- --------
Cash (outflow)/inflow from financing
activities (1.4) 3.6 (135.0)
Net inflow/(outflow) of cash and
cash equivalents 13 142.9 5.4 (13.1)
Cash and cash equivalents at beginning
of period (28.7) (15.1) (15.1)
Effect of movement in foreign exchange 0.1 (0.7) (0.5)
------------------------------------------ ----- -------- ------- --------
Cash and cash equivalents at end
of period 114.3 (10.4) (28.7)
------------------------------------------ ----- -------- ------- --------
Consolidated statement of changes in equity (unaudited)
------------------------------------------------------------------------------------------------
Profit
Share Share Merger Other and loss Non-controlling
capital premium reserve reserves reserve interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------- -------- -------- --------- ---------- ---------------- --------
At 1 January
2011 24.0 1,124.7 890.7 (9.3) (1,040.7) 0.1 989.5
Loss for the
period - - - - (11.7) - (11.7)
Other
comprehensive
income - - - - (5.6) - (5.6)
Share based
payments - - - - 2.7 - 2.7
At 25 June
2011 24.0 1,124.7 890.7 (9.3) (1,055.3) 0.1 974.9
--------------- -------- -------- -------- --------- ---------- ---------------- --------
At 1 January
2010 24.0 1,124.7 890.7 (10.1) (964.5) 0.1 1,064.9
Loss for the
period - - - - (40.3) - (40.3)
Other
comprehensive
income - - - 1.4 (23.7) - (22.3)
Share based
payments - - - - 2.7 - 2.7
At 26 June
2010 24.0 1,124.7 890.7 (8.7) (1,025.8) 0.1 1,005.0
--------------- -------- -------- -------- --------- ---------- ---------------- --------
At 1 January
2010 24.0 1,124.7 890.7 (10.1) (964.5) 0.1 1,064.9
Loss for the
year - - - - (99.3) - (99.3)
Other
comprehensive
income - - - 0.8 16.2 - 17.0
Share based
payments - - - - 6.9 - 6.9
At 31 December
2010 24.0 1,124.7 890.7 (9.3) (1,040.7) 0.1 989.5
--------------- -------- -------- -------- --------- ---------- ---------------- --------
1. General information
Premier Foods plc (the "Company") is a public limited Company
incorporated in the United Kingdom under the Companies Act 1985 (as
amended and restated). 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 17 of the Group's annual financial
statements for the year ended 31 December 2010.
2. Significant accounting policies
Basis of preparation
This condensed consolidated interim financial information
comprises the balance sheet as at 25 June 2011 and related income
statement, statement of comprehensive income, statement of cash
flows, statement of changes in equity and supporting notes
(hereinafter referred to as "financial information").
The financial information does not constitute statutory accounts
within the meaning of Section 434 of the Companies Act 2006. The
financial information has been reviewed, not audited. The Group's
financial statements for the year ended 31 December 2010, which
were approved by the Board of Directors on 7 March 2011, have been
reported on by the Group's auditors and delivered to the Registrar
of Companies. The report of the auditors was unqualified, did not
contain an emphasis of matter paragraph and did not contain any
statement under section 498 of the Companies Act 2006.
The financial statements for the year ended 31 December 2010 did
not contain statements under section 498 (2) or (3) of the
Companies Act 2006. These sections address whether or not proper
accounting records have been kept, whether the Company's financial
statements are in agreement with those records and whether the
auditors have obtained all the information and explanations
necessary for the purposes of their audit.
The financial information for the period ended 25 June 2011 has
been prepared in accordance with the Disclosure and Transparency
Rules of the Financial Services Authority and with IAS 34, "Interim
Financial Reporting" as adopted by the European Union. The
financial information for the period ended 25 June 2011 should be
read in conjunction with the Group's financial statements for the
year ended 31 December 2010 which have been prepared in accordance
with International Financial Reporting Standards ("IFRSs") as
adopted by the 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 group meets its day-to-day working capital requirements
through its bank facilities. The current economic conditions
continue to create uncertainty particularly over (a) the level of
demand for the group's products; and (b) the availability of bank
finance for the foreseeable future. The group's forecasts and
projections, taking account of reasonably possible changes in
trading performance, show that the group should be able to operate
within the level of its current facilities. After making enquiries,
the directors have a reasonable expectation that the group has
adequate resources to continue in operational existence for the
foreseeable future. The group therefore continues to adopt the
going concern basis in preparing its consolidated interim financial
statements.
This financial information was approved for issue on 4 August
2011.
Accounting policies
Except as described below, the accounting policies applied are
consistent with those of the annual financial statements for the
year ended 31 December 2010, as described in those financial
statements.
Taxes on income in the interim periods are accrued using the tax
rate that would be expected to be applicable to total annual
earnings in each tax jurisdiction.
The following accounting standards and interpretations became
effective for the current reporting period:
IFRS 1 (Amendment) - 'First-time adoption', on financial
instrument disclosures, Interim information, deemed cost exemption
and rate regulated entities.
IAS 1 (Amendment) - 'Presentation of financial statements'
IFRS 3 (Amendment) - 'Business combinations' - contingent
consideration, share-based payment transactions and non-controlling
interests
IFRS 7 (Amendment) - 'Financial Instruments- disclosures' -
nature and extent of risks arising from financial instruments
IAS 24 (Amendment) - 'Related party disclosures'
IAS 27 (Amendment) - 'Consolidated and separate financial
statements'
IAS 32 (Amendment) - 'Financial Instruments: Presentation', on
classification of rights issues
IAS 34 (Amendment) - 'Interim financial reporting'
IFRIC 13 (Amendment) - 'Customer loyalty programmes' - fair
value
IFRIC 14 (Amendment) - 'IAS 19 - The limit on a defined benefit
asset, minimum funding requirements and their interaction'
IFRIC 19 - 'Extinguishing financial liabilities with equity
instruments'
The application of these standards and interpretations has not
had a material effect on the net assets, results and disclosures of
the Group.
Basis of consolidation
The consolidated interim financial information includes the
results of Premier Foods plc and entities controlled by the Company
(its subsidiaries) for the period ended 25 June 2011. 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.
The purchase method of accounting is used for all
acquisitions.
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 are included
in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal, as
appropriate.
Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies used by the
Group.
All inter-group transactions, balances, income and expenses are
eliminated on consolidation.
Principal risks and uncertainties
The principal risks and uncertainties which could impact the
Group for the remainder of the current financial year are those
detailed on pages 44 to 47 of the Group's annual financial
statements for 31 December 2010. The Directors have considered the
principal risks and uncertainties and believe that these have not
changed in the interim period. These include, amongst others:
responding to changes in consumer preference; brand protection; the
Group's ability to pass on raw material price increases; the impact
of new legislation and regulation on the food industry; the cost of
servicing current debt levels and foreign currency rate
fluctuations.
3. Critical accounting estimates and judgements
The following are areas of particular significance to the
Group's interim financial information and include the application
of judgement, which is fundamental to the completion of a set of
condensed consolidated interim financial information.
Pensions
The present value of the Group's pension obligations depends on
a number of actuarial assumptions. The primary assumptions used
include 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, Company and scheme 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. One such
assumption is the assumption of mortality rates and how these are
expected to change in the future. If the Group's assumption on the
mortality of its members was amended to assume an increase of a
further one year improvement in mortality, total liabilities would
increase by approximately 3.8%. Each 0.1% decrease or increase in
bond yields would increase or decrease the deficit by a further
GBP51m/GBP49m. Each 0.1% increase or decrease in the assumed
inflation rate would increase or decrease the deficit by a further
GBP18m/GBP21m. Each of the underlying assumptions is set out in
more detail in note 12.
Goodwill and other intangible assets
Impairment reviews in respect of goodwill are performed annually
unless an event indicates that an impairment review is necessary.
Impairment reviews in respect of intangible assets are performed
when an event indicates than 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
("CGU's") are determined based on the higher of realisable value
and value-in-use calculations. These calculations require the use
of estimates.
Acquired trademarks, brands, customer relationships, recipes and
similar assets are considered to have finite lives that range from
7 to 40 years. The determination of the 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 are 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
are accrued 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 in the case of airtime costs when a
particular campaign is used more than once. In this case they are
charged in line with the airtime profile.
Exceptional items
Exceptional items are not explicitly defined 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 material and
non-recurring in nature, such as integration of an acquisition,
disposal of a business or asset, material impairments or
refinancing related transactions. See note 6 for further
details.
Securitisation
The Group has sold the rights and obligations relating to
certain of its trade receivable balances under a receivables
purchasing agreement in order to achieve an overall lower cost of
funding and permanently accelerate the generation of cash from
working capital. Accounting for a sale of this nature is
judgemental and dependent on evidence of the substantive transfer
of risk and reward from the Group to a third party. In this
instance, transference of the two primary risks, those of late
payment and credit default was achieved at the balance sheet date.
The Group anticipates that the receivables purchasing agreement
will remain in place over the medium term and that de-recognition
of the receivables subject to it will continue to be achieved,
dependent upon ongoing review of the assessment of risk and reward
transfer.
Financial instruments
The Group uses a variety of derivative financial instruments to
manage the risks arising from adverse movements in interest rates,
commodity prices and foreign currency.
The Group has a policy of not applying hedge accounting to these
derivatives (other than in the case of a net investment hedge
against Euro denominated assets) and taking any gain or loss on the
movement of the fair values of derivatives to the income
statement.
4. Segmental analysis
IFRS 8 requires operating segments to be determined based on the
Group's internal reporting to the Chief Operating Decision Maker
("CODM"). The CODM has been determined to be the Chief Executive
Officer, Chief Financial Officer and Chief Operating Officer as
they are primarily responsible for the allocation of resources to
segments and the assessment of performance of the segments.
The CODM uses trading profit, as reviewed at monthly business
review meetings, as the key measure of the segments' results as it
reflects the segments' underlying trading performance for the
period under evaluation. Trading profit is a consistent measure
within the Group and the reporting of this measure at the monthly
business review meetings, which are organised according to product
types, has been used to identify and determine the Group's
operating segments. Trading profit is defined as operating profit
before exceptional items, amortisation and impairment of intangible
assets, the revaluation of foreign exchange and other derivative
contracts under IAS 39 and pension credits or charges in relation
to the difference between the expected return on pension assets,
administration costs and interest costs on pension liabilities.
The Group's operating segments are "Grocery", "Hovis", "Retailer
Branded Chilled" and "Meat-free". The Group previously aggregated
and reported the Retailer Branded Chilled and Meat-free operating
segments in the "Other" segment, as they did not meet the relevant
quantitative thresholds and did not have similar economic
characteristics and therefore could not be aggregated into their
own separate reporting segment under IFRS 8. As a result of the
Group's disposal of the Meat-free business in March 2011, results
for the Meat-free operating segment are presented as discontinued
operations in both the current year and prior year
comparatives.
In February 2011, the Group announced that it had reached an
agreement to sell its East Anglian canned grocery operations, which
is part of the Grocery segment. The results of the East Anglian
canned grocery operations for the half year ended 25 June 2011 and
comparatives are included within continuing operations as it is not
a separate operating segment.
The Group reports the remaining operating segments on three
continuing segments within the business: "Grocery", "Hovis" and
"Retailer Branded Chilled".
The Grocery segment sells ambient food products. The Hovis
segment sells bread, morning goods, flour products and frozen pizza
bases and the Retailer Branded Chilled segment includes businesses
which sell chilled ready meals and cakes.
The segment results for the half years ended 25 June 2011 and 26
June 2010 and for the year ended 31 December 2010 and the
reconciliation of the segment measures to the respective statutory
items included in the interim financial information are as
follows:
Half year ended 25 Jun 2011
------------------------------------------------------------------------------
Total
Grocery Hovis Other for Group
GBPm GBPm GBPm GBPm
-------------------------------------- -------- ------ ------- -----------
Revenue from continuing operations
External 653.7 351.0 90.1 1,094.8
Inter-segment 1.4 10.8 0.8 13.0
-------------------------------------- -------- ------ ------- -----------
Result
Trading profit/(loss) 79.1 8.5 (13.3) 74.3
-------------------------------------- -------- ------ ------- -----------
Amortisation of intangible assets (42.4)
Fair value movements on foreign
exchange and other derivative
contracts 1.3
Pension financing credit 9.2
-------------------------------------- -------- ------ ------- -----------
Operating profit 42.4
Interest payable and other financial
charges (63.5)
Interest receivable and other
financial income 3.6
Net movement on fair valuation of
interest rate financial instruments 14.4
--------------------------------------
Loss before taxation for continuing
operations (3.1)
-------------------------------------- -------- ------ ------- -----------
Balance sheet
Segment assets 2,229.9 697.4 144.6 3,071.9
Unallocated assets 229.6
--------------------------- --------
Consolidated total assets 3,301.5
--------------------------- -------- ------ ------ --------
Half year ended 26 Jun 2010 (Restated)(1)
------------------------------------------------------------------------------
Total
Grocery Hovis Other for Group
GBPm GBPm GBPm GBPm
--------------------------------------- -------- ------ ------ -----------
Revenue from continuing operations
External 702.0 329.9 87.3 1,119.2
Inter-segment 1.8 11.0 1.4 14.2
--------------------------------------- -------- ------ ------ -----------
Result
Trading profit/(loss) 91.9 15.1 (2.3) 104.7
--------------------------------------- -------- ------ ------ -----------
Amortisation of intangible assets (39.5)
Fair value movements on foreign
exchange and other derivative
contracts (4.2)
Pension financing credit 2.0
--------------------------------------- -------- ------ ------ -----------
Operating profit 63.0
Interest payable and other financial
charges (83.3)
Interest receivable and other
financial income 5.0
Net movement on fair valuation of
interest rate financial instruments (42.8)
---------------------------------------
Loss before taxation for continuing
operations (58.1)
--------------------------------------- -------- ------ ------ -----------
(1) Comparatives have been restated to reflect the
classification of the Meat-free business as a discontinued
operation.
Balance sheet
Segment assets 2,372.8 677.7 555.7 3,606.2
Unallocated assets 29.0
--------------------------- --------
Consolidated total assets 3,635.2
--------------------------- -------- ------ ------ --------
Year ended 31 Dec 2010
------------------------------------------------------------------------------
Total
Grocery Hovis Other for Group
GBPm GBPm GBPm GBPm
--------------------------------------- -------- ------ ------ -----------
Revenue from continuing operations
External 1,546.8 687.6 203.6 2,438.0
Inter-segment 3.9 27.7 2.5 34.1
--------------------------------------- -------- ------ ------ -----------
Result
Trading profit/(loss) 256.2 38.8 (0.1) 294.9
--------------------------------------- -------- ------ ------ -----------
Amortisation of intangible assets (78.9)
Fair value movements on foreign
exchange and other derivative
contracts (2.0)
Pension financing credit 4.1
--------------------------------------- -------- ------ ------ -----------
Operating profit before exceptional
items 218.1
Exceptional items (125.0)
--------------------------------------- -------- ------ ------ -----------
Operating profit 93.1
Interest payable and other financial
charges (160.1)
Interest receivable and other
financial income 12.0
Net movement on fair valuation of
interest rate financial instruments (43.3)
---------------------------------------
Loss before taxation for continuing
operations (98.3)
--------------------------------------- -------- ------ ------ -----------
Balance sheet
Segment assets 2,297.2 663.1 424.1 3,384.4
Unallocated assets 115.1
--------------------------- --------
Consolidated total assets 3,499.5
--------------------------- -------- ------ ------ --------
Inter-segment transfers or transactions are entered into under
the same terms and conditions that would be available to unrelated
third parties. As a consequence of extensive integration of the
business, certain operating costs have been incurred centrally.
These costs are allocated to reporting segments on an appropriate
basis depending on the various cost drivers and therefore the total
segment result is equal to the Group's total trading profit.
Segment assets comprise property, plant and equipment, goodwill
and intangible assets, inventories, receivables and retirement
benefit assets and exclude cash and cash equivalents, derivative
assets and certain Corporate assets that are not able to be
allocated to the Group's reporting segments.
Unallocated assets comprise cash and cash equivalents, taxation
balances, derivative financial assets and head office assets. In
2010, this includes Group-wide software and hardware assets that
were previously reported within the Grocery segment.
The Group primarily supplies the UK market, although it also
supplies certain products to other European countries and a number
of other countries. The following table provides an analysis of the
Group's revenue, which is allocated on the basis of geographical
market destination and an analysis of the Group's non current
assets (excluding retirement benefit assets) by geographical
location.
Half
Half year year Year
Continuing operations - revenue ended ended ended
25 Jun 26 Jun 31 Dec
2011 2010 2010
(Restated)(1)
GBPm GBPm GBPm
----------------------------------- ---------- -------------- --------
United Kingdom 1,034.2 1,061.5 2,314.7
Other Europe 42.8 48.2 100.6
Rest of world 17.8 9.5 22.7
----------------------------------- ---------- -------------- --------
Total for Group 1,094.8 1,119.2 2,438.0
----------------------------------- ---------- -------------- --------
(1) Comparatives have been restated to reflect the classification
of the Meat-free business as a discontinued operation.
Seasonality of results
Consumer demand for convenience products tends to be higher in
colder months of the year. Sales of certain products may therefore
be affected by unseasonable weather conditions. Also certain
products experience increased sales during the pre-Christmas period
and this has an impact on working capital as production is higher
and stock levels build in the run up to this period. Consequently,
the results of operations for the half year periods are not
necessarily indicative of the results to be expected for the full
year.
5. Net other operating expenses
Half Year Half year Year
ended ended ended
25 Jun 26 Jun 31 Dec
2011 2010 2010
(Restated)(1)
GBPm GBPm GBPm
----------------------------------------- ---------- -------------- -------
(Gain)/loss on mark to market valuation
of foreign exchange contracts and other
derivatives (1.3) 4.2 2.0
Loss/(gain) on disposal of fixed assets 0.5 0.4 (4.7)
Net other operating expenses 0.1 0.6 0.8
Total net other operating (income)/
expense (0.7) 5.2 (1.9)
----------------------------------------- ---------- -------------- -------
(1) Comparatives have been restated to reflect the classification
of the Meat-free business as a discontinued operation.
6. Exceptional items
The Group has completed its major integration and manufacturing
rationalisation programmes following the acquisitions of RHM and
Campbell's. As a result, the Group has not incurred any exceptional
expenditure during the year.
In the second half of 2010 a charge for GBP125.0m was recognised
against the goodwill allocated to the Brookes Avana CGU thereby
reducing the carrying value of this CGU to its recoverable amount.
This impairment arose as a result of adverse trading conditions and
an increase in discount rate. Any favourable change in assumptions
in future periods will result in additional headroom however any
adverse change would result in additional impairment.
7. Interest
Half year Half year Year
ended ended ended
25 Jun 26 Jun 31 Dec
2011 2010 2010
(Restated)(1)
GBPm GBPm GBPm
---------------------------------------- ---------- -------------- --------
Interest payable on bank loans and
overdrafts 7.9 12.0 20.2
Interest payable on term facility 16.0 22.5 45.2
Interest payable on revolving facility 2.9 2.7 6.0
Interest payable on interest rate
derivatives 9.5 37.4 59.5
Interest payable on interest rate
financial liabilities designated as
other liabilities at fair value
through profit or loss 19.8 1.0 11.9
Unwind of discount on provisions 0.2 0.8 1.3
Amortisation of debt issuance costs
and deferred fees 6.8 6.9 14.4
63.1 83.3 158.5
Exceptional write-off of financing
costs 0.4 - 1.6
Accelerated amortisation of debt
issuance costs - - -
Total interest payable and other
financial charges 63.5 83.3 160.1
---------------------------------------- ---------- -------------- --------
Interest receivable on bank deposits (3.6) (5.0) (12.0)
Total interest receivable and other
financial income (3.6) (5.0) (12.0)
---------------------------------------- ---------- -------------- --------
Movement on fair valuation of interest
rate derivatives (7.9) 39.1 (133.7)
Movement on fair valuation of interest
rate financial liabilities designated
as other financial liabilities at fair
value through profit or loss (6.5) 3.7 177.0
Net movement on fair valuation of
interest rate financial instruments (14.4) 42.8 43.3
---------------------------------------- ---------- -------------- --------
Net interest payable 45.5 121.1 191.4
---------------------------------------- ---------- -------------- --------
(1) Comparatives have been restated to reflect the classification
of the Meat-free business as a discontinued operation.
8. Tax on loss on ordinary activities
The taxation credit for the first half of 2011 is GBP5.6m (June
2010 GBP15.0m credit). The tax credit is made up of a current tax
charge of GBP0.4m, relating to profits earned in overseas
subsidiaries and a deferred tax credit of GBP1.6m on the loss on UK
operations together with a prior year restatement of opening
deferred tax balances, giving a credit of GBP4.4m.
The current period credit differs from the standard UK rate of
corporation tax of 26.25% as a result of lower tax rates applicable
in Ireland and the reduction in the main rate of corporation
tax.
A taxation charge of GBP0.1m arises on discontinued operations
relating to trading activities prior to disposal. The disposal of
Marlow Foods does not give rise to a tax credit as the loss in not
allowable under Substantial Shareholding Exemption rules.
The Finance (No.3) Act 2011, which was substantively enacted on
19 July 2011, includes legislation reducing the main rate of
corporation tax from 27% to 26% from 1 April 2011. The 1% reduction
for the 2011 financial year has been reflected in the financial
statements by restating the deferred tax liability at 31 December
2010 giving a credit of GBP4.4m. This is off-set by a charge to
equity of GBP2.2m to reflect where the credits were originally
made. In addition, the deferred tax movements in the period have
been reflected at 26%, being the rate at which the liabilities are
expected to reverse, which has resulted in a GBP0.1m increase to
the income tax credit.
Further reductions to the main rate of corporation tax are
proposed to reduce the rate by 1% per annum to 23% by 1 April 2014.
However, as these further reductions in the main rate of
corporation tax have not been substantially enacted at the balance
sheet date they are not reflected in the deferred tax recognised on
the balance sheet date.
9. Discontinued operations
On 7 March 2011, the Group completed the sale of its Meat-free
business to Exponent Private Equity and Intermediate Capital
Group.
The results of the Meat-free business for the period to 7 March
2011 are included in discontinued operations in the Group's
consolidated income statement. Comparatives also include the
results of the Meat-free business as below:
Half year Half year Year
ended ended ended
25 Jun 26 Jun 31 Dec
2011 2010 2010
(Restated)(1)
GBPm GBPm GBPm
---------------------------------------- ---------- -------------- --------
Revenue 21.3 64.1 128.8
Operating expenses (21.0) (60.6) (141.1)
---------------------------------------- ---------- -------------- --------
Operating profit/(loss) before taxation 0.3 3.5 (12.3)
Interest payable - - (0.6)
Interest receivable - 0.2 0.4
---------------------------------------- ---------- -------------- --------
Profit/(loss) before taxation 0.3 3.7 (12.5)
---------------------------------------- ---------- -------------- --------
Taxation charge (0.1) (0.9) (0.1)
---------------------------------------- ----------
Profit/(loss) after taxation on
discontinued operations for the
period 0.2 2.8 (12.6)
---------------------------------------- ---------- -------------- --------
Loss on disposal (14.4) - -
Total (loss)/profit arising from
discontinued operations (14.2) 2.8 (12.6)
---------------------------------------- ---------- -------------- --------
(1 ) Comparatives have been restated to reflect the classification
of the Meat-free business as a discontinued operation.
Included in the operating expenses for the year ended 31
December 2010 above is an impairment charge of GBP25.0m, recognised
against the goodwill allocated to the Meat-free CGU.
During the period to 25 June 2011, discontinued operations
contributed to a net outflow of GBP6.5m (2010: GBP7.3m inflow) to
the Group's net operating cash flows, and a GBP1.0m outflow to
investing activities (2010: GBP0.7m outflow).
10. Disposal of business
On 7 March 2011, the Group completed the sale of its Meat-free
business to Exponent Private Equity and Intermediate Capital Group
for GBP205.0m, before disposal costs and working capital
adjustments. The impact on the results of the Group results is
closed in note 9. On the date of disposal, the net assets of the
business, the consideration and the loss on disposal were as
follows:
Half year ended 25 Jun 2011
GBPm
------------------------------------------------
Property, plant and equipment 68.4
Intangible assets and goodwill 139.7
Inventories 23.6
Trade and other receivables 24.9
Trade and other payables (21.4)
Provisions and lease obligations (26.2)
-------------------------------------- --------
Net assets disposed 209.0
Less net consideration (194.6)
-------------------------------------- --------
Loss on disposal 14.4
-------------------------------------- --------
Net cash inflow arising on disposal:
Initial consideration 205.0
Working capital adjustments (5.8)
Disposal costs (4.6)
-------------------------------------- --------
Net cash inflow for the year 194.6
-------------------------------------- --------
11. Assets held for sale
As at 25 June 2011, the assets relating to the East Anglian
canned grocery operations were held for sale prior to the
completion of the sale to Princes Limited on 23 July 2011.
At 31 December 2010, the assets and liabilities relating to the
Meat-free business and the East Anglian canned grocery operations
were held for sale in light of the decision to sell these
businesses.
Half year Half year Year
ended ended ended
25 Jun 26 Jun 31 Dec
2011 2010 2010
GBPm GBPm GBPm
------------------------------------- ---------- ---------- --------
Non-current assets:
Property, plant and equipment 59.8 - 114.2
Goodwill 60.6 - 125.2
Other intangible assets 2.3 - 77.4
Current assets:
Inventories 43.0 - 68.1
Trade and other receivables 0.4 - 21.4
Total assets held for sale 166.1 - 406.3
------------------------------------- ---------- ---------- --------
Current liabilities:
Trade and other payables - - (23.0)
Non-current liabilities:
Deferred tax liabilities - - (25.8)
Total liabilities held for sale - - (48.8)
------------------------------------- ---------- ---------- --------
Net assets and liabilities held for
sale 166.1 - 357.5
------------------------------------- ---------- ---------- --------
12. Retirement benefit schemes
The Group operates a number of defined benefit schemes and a
number of defined contribution schemes. These are as follows:
a) Premier schemes
The Premier Foods Pension Scheme ("PFPS") was the principal
funded defined benefit scheme within the old Premier Group which
also operated a smaller funded defined benefit scheme, the Premier
Ambient Products Pension Scheme ("PAPPS") for employees acquired
with the Ambrosia business in 2001. As a result of the acquisition
of Campbell's in 2006, the Group inherited the Premier Grocery
Products Pension Scheme ("PGPPS") covering the employees of the
Campbell's UK business, and the Premier Grocery Products Ireland
Pension Scheme ("PGPIPS") covering the employees of Campbell's
Ireland. The Group also acquired two further schemes with the
acquisition of Chivers Ireland in January 2007, the Chivers 1987
Pension Scheme, and the Chivers 1987 Supplementary Pension Scheme.
These schemes are presented together below as the Premier
schemes.
b) RHM schemes
As a result of the acquisition of RHM, the Group also acquired
the RHM Pension Scheme, the Premier Foods Ireland Employee Benefits
Scheme (1994), the Premier Foods Ireland Van Sales Scheme and the
French Termination Indemnity Arrangements. These schemes are
presented together below as the RHM schemes, with the exception of
the French Termination Indemnity Arrangements which was disposed of
with the speciality bakery businesses in 2009 and the Premier Foods
Ireland Van Sales Scheme which was wound up in 2010.
The exchange rates used to translate the overseas Euro based
schemes are GBP1.00 = 1.1463 Euros for the average rate during the
period, and GBP1.00 = 1.1269 Euros for the closing position at 25
June 2011.
Until 30 June 2011, the employees of the above schemes accrued
retirement benefits which varied as a percentage of final salary on
retirement. On 30 June 2011 the link to final salary was closed to
future accrual for UK schemes and members' retirement benefits will
now be linked to their salary on that date, index linked at Retail
Price Index (subject to a 5% cap) until retirement date. From 1
July 2011 employees accrued career average benefits or chose to
transfer to the new defined contribution scheme. Those contributing
members of the PAPPS and PGPPS choosing career average benefits
joined the PFPS on 1 July 2011 and transferred their past service
entitlements to the scheme. Membership of the Group's defined
benefit pension schemes is now closed to new employees, who are
entitled to join the Group's main defined contribution scheme, the
Group Personal Pension Plan.
The assets of all defined benefit 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
made up of 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 are as follows:
As at As at As at
25 Jun 26 Jun 31 Dec
2011 2010 2010
GBPm GBPm GBPm
--------------------------- -------- -------- --------
Premier
Discount rate 5.45% 5.50% 5.45%
Inflation 3.50% 3.30% 3.45%
Expected salary increases 4.50% 4.30% 4.45%
Future pension increases 2.20% 2.20% 2.20%
--------------------------- -------- -------- --------
RHM
Discount rate 5.45% 5.50% 5.45%
Inflation 3.50% 3.30% 3.45%
Expected salary increases 4.50% 4.30% 3.30%
Future pension increases 2.20% 3.30% 2.20%
--------------------------- -------- -------- --------
The amounts recognised in the balance sheet arising from the
Group's obligations in respect of its defined benefit schemes are
as follows:
As at As at As at
25 Jun 26 Jun 31 Dec
2011 2010 2010
GBPm GBPm GBPm
------------------------------------- ---------- ---------- ----------
Premier
Present value of funded obligations (742.7) (705.0) (748.0)
Fair value of plan assets 524.2 479.9 512.8
------------------------------------- ---------- ----------
Deficit in scheme (218.5) (225.1) (235.2)
------------------------------------- ---------- ---------- ----------
RHM
Present value of funded obligations (2,402.0) (2,369.8) (2,372.3)
Fair value of plan assets 2,347.2 2,164.3 2,286.6
------------------------------------- ---------- ----------
Deficit in scheme (54.8) (205.5) (85.7)
------------------------------------- ---------- ---------- ----------
TOTAL
Present value of funded obligations (3,144.7) (3,074.8) (3,120.3)
Fair value of plan assets 2,871.4 2,644.2 2,799.4
-------------------------------------
Deficit in scheme (273.3) (430.6) (320.9)
------------------------------------- ---------- ---------- ----------
Based upon the assumptions regarded as appropriate as at 25 June
2011, the aggregate deficit on the Group's pension schemes was
GBP273.3m (31 December 2010: GBP320.9m).
The reduction in the aggregate deficit since the year end is as
a result of cash contributions made by the Group. In addition, the
closure of the final salary link in the Group's UK pension schemes
has resulted in a reduction in the scheme liabilities.
Changes in the fair value of plan liabilities were as
follows:
As at As at As at
25 Jun 26 Jun 31 Dec
2011 2010 2010
GBPm GBPm GBPm
------------------------------------ ---------- ---------- ----------
Premier
Opening defined benefit obligation (748.0) (685.5) (685.5)
Current service cost (5.9) (6.6) (13.2)
Past service credit 16.9 - 6.7
Interest cost (19.8) (19.8) (39.2)
Actuarial losses 1.5 (8.3) (42.8)
Exchange differences (1.1) 3.2 1.5
Curtailments 0.3 - -
Contributions by plan participants (2.6) (2.5) (5.1)
Benefits paid 16.0 14.5 29.6
------------------------------------
Closing defined benefit obligation (742.7) (705.0) (748.0)
------------------------------------ ---------- ---------- ----------
RHM
Opening defined benefit obligation (2,372.3) (2,273.0) (2,273.0)
Current service cost (4.3) (3.8) (7.5)
Past service (cost)/credit (4.8) - 4.9
Interest cost (63.3) (62.3) (129.1)
Actuarial losses (3.2) (79.8) (66.8)
Exchange differences (0.5) 1.3 0.5
Curtailments - (0.1) 1.5
Contributions by plan participants (6.9) (5.7) (10.8)
Benefits paid 53.3 53.6 108.0
------------------------------------ ---------- ----------
Closing defined benefit obligation (2,402.0) (2,369.8) (2,372.3)
------------------------------------ ---------- ---------- ----------
TOTAL
Opening defined benefit obligation (3,120.3) (2,958.5) (2,958.5)
Current service cost (10.2) (10.4) (20.7)
Past service credit 12.1 - 11.6
Interest cost (83.1) (82.1) (168.3)
Actuarial losses (1.7) (88.1) (109.6)
Exchange differences (1.6) 4.5 2.0
Curtailments 0.3 (0.1) 1.5
Contributions by plan participants (9.5) (8.2) (15.9)
Benefits paid 69.3 68.1 137.6
------------------------------------
Closing defined benefit obligation (3,144.7) (3,074.8) (3,120.3)
------------------------------------ ---------- ---------- ----------
Changes in the fair value of plan assets were as follows:
As at As at As at
25 Jun 26 Jun 31 Dec
2011 2010 2010
GBPm GBPm GBPm
----------------------------------------- -------- -------- --------
Premier
Opening fair value of plan assets 512.8 477.1 477.1
Expected return 19.8 19.0 37.6
Administrative and life insurance costs (1.5) (1.1) (3.1)
Actuarial (losses)/gains (8.3) (11.6) 2.8
Contributions by employer 13.7 11.2 24.1
Contributions by plan participants 2.6 2.5 5.1
Exchange differences 1.1 (2.7) (1.2)
Benefits paid (16.0) (14.5) (29.6)
-----------------------------------------
Closing fair value of plan assets 524.2 479.9 512.8
----------------------------------------- -------- -------- --------
RHM
Opening fair value of plan assets 2,286.6 2,052.9 2,052.9
Expected return 75.6 67.9 141.4
Administrative and life insurance costs (1.6) (1.7) (3.5)
Actuarial gains/(losses) 3.1 67.1 153.2
Assets disposed due to settlement - - (1.6)
Contributions by employer 29.4 27.0 41.9
Contributions by plan participants 6.9 5.7 10.8
Exchange differences 0.5 (1.0) (0.5)
Benefits paid (53.3) (53.6) (108.0)
-----------------------------------------
Closing fair value of plan assets 2,347.2 2,164.3 2,286.6
----------------------------------------- -------- -------- --------
TOTAL
Opening fair value of plan assets 2,799.4 2,530.0 2,530.0
Expected return 95.4 86.9 179.0
Administrative and life insurance costs (3.1) (2.8) (6.6)
Actuarial gains/(losses) (5.2) 55.5 156.0
Assets disposed due to settlement - - (1.6)
Contributions by employer 43.1 38.2 66.0
Contributions by plan participants 9.5 8.2 15.9
Exchange differences 1.6 (3.7) (1.7)
Benefits paid (69.3) (68.1) (137.6)
-----------------------------------------
Closing fair value of plan assets 2,871.4 2,644.2 2,799.4
----------------------------------------- -------- -------- --------
The amounts recognised in the income statement were as
follows:
Half Year Half Year Year
ended ended ended
25 Jun 26 Jun 31 Dec
2011 2010 2010
GBPm GBPm GBPm
----------------------------------------- ---------- ---------- --------
Premier
Current service cost 5.9 6.6 13.2
Past service credit (16.9) - (6.7)
Administrative and life insurance costs 1.5 1.1 3.1
Interest cost 19.8 19.8 39.2
Expected return on plan assets (19.8) (19.0) (37.6)
Gain on curtailment (0.3) - -
-----------------------------------------
Total (credit)/charge (9.8) 8.5 11.2
----------------------------------------- ---------- ---------- --------
RHM
Current service cost 4.3 3.8 7.5
Past service cost/(credit) 4.8 - (4.9)
Administrative and life insurance costs 1.6 1.7 3.5
Interest cost 63.3 62.3 129.1
Expected return on plan assets (75.6) (67.9) (141.4)
Loss on curtailment - 0.1 0.1
----------------------------------------- ---------- ----------
Total credit (1.6) - (6.1)
----------------------------------------- ---------- ---------- --------
Total
Current service cost 10.2 10.4 20.7
Past service credit (12.1) - (11.6)
Administrative and life insurance costs 3.1 2.8 6.6
Interest cost 83.1 82.1 168.3
Expected return on plan assets (95.4) (86.9) (179.0)
(Gain)/loss on curtailment (0.3) 0.1 0.1
-----------------------------------------
Total (credit)/charge (11.4) 8.5 5.1
----------------------------------------- ---------- ---------- --------
Defined contribution schemes
A number of companies in the Group operate defined contribution
schemes which are predominantly stakeholder arrangements. In
addition a number of schemes are operated providing only life
assurance benefits. The total expense recognised in the income
statement of GBP0.1m (26 June 2010: GBP0.6m) represents
contributions payable to the plans by the Group at rates specified
in the rules of the schemes.
13. Notes to the cash flow statement
Reconciliation of operating profit to cash generated from
operating activities
Half Half
year year Year
ended ended ended
25 Jun 26 Jun 31 Dec
2011 2010 2010
(Restated)(1)
GBPm GBPm GBPm
-------------------------------------------- ------- -------------- -------
Continuing operations
Operating profit 42.4 63.0 93.1
Depreciation of property, plant and
equipment 21.8 23.6 47.6
Amortisation of other intangible assets 42.4 39.5 78.9
Impairment and (gain) on disposal of
property, plant and equipment (0.2) 0.3 (0.2)
Gain on disposal of intangible assets - - (3.9)
Impairment of goodwill - - 125.0
Revaluation losses on financial instruments (1.3) 4.2 2.0
Share based payments 2.6 2.8 6.9
------- -------------- -------
Net cash inflow from operating activities
before interest and tax and movements in
working capital 107.7 133.4 349.4
(Increase)/decrease in inventories (24.1) (7.8) 6.5
Decrease/(increase) in trade and other
receivables 49.4 32.7 (25.2)
(Increase)/decrease in trade and other
payables and provisions (45.0) (53.0) 25.1
Movement in net retirement benefit
obligations (53.6) (29.7) (60.9)
------- -------------- -------
Cash generated from continuing operations 34.4 75.6 294.9
Discontinued operations (6.5) 7.3 18.3
-------------------------------------------- ------- -------------- -------
Cash generated from operating activities 27.9 82.9 313.2
-------------------------------------------- ------- -------------- -------
Exceptional items cash flow (1.5) (3.8) (6.9)
Cash generated from operations before
exceptional items 29.4 86.7 320.1
-------------------------------------------- ------- -------------- -------
(1 ) Comparatives have been restated to reflect the classification
of the Meat-free business as a discontinued operation.
Reconciliation of cash and cash equivalents to net
borrowings
Half Half
year year Year
ended ended ended
25 Jun 26 Jun 31 Dec
2011 2010 2010
GBPm GBPm GBPm
------------------------------------------ ---------- ---------- ----------
Net inflow/(outflow) of cash and cash
equivalents 142.9 5.4 (13.1)
Decrease/(increase) in finance leases 18.2 0.3 (17.7)
(Increase)/decrease in borrowings (17.0) (4.0) 121.7
Other non-cash changes (3.8) (2.0) (5.8)
------------------------------------------ ---------- ---------- ----------
Decrease/(increase) in borrowings net of
cash 140.3 (0.3) 85.1
Total net borrowings at beginning of the
period (1,280.0) (1,365.1) (1,365.1)
------------------------------------------ ---------- ---------- ----------
Total net borrowings at end of the period (1,139.7) (1,365.4) (1,280.0)
------------------------------------------ ---------- ---------- ----------
Analysis of movement in borrowings
As at Other As at
1 Jan Cash non-cash 25 Jun
2011 flow changes 2011
GBPm GBPm GBPm GBPm
-------------------------------- ---------- -------- ---------- ----------
Bank overdrafts (30.6) 29.0 - (1.6)
Cash and bank deposits 1.9 113.9 0.1 115.9
-------------------------------- ---------- -------- ---------- ----------
Net cash and cash equivalents (28.7) 142.9 0.1 114.3
Borrowings - term facilities (1,180.0) 201.1 - (978.9)
Borrowings - revolving credit
facilities (20.0) (233.0) - (253.0)
Finance leases (19.1) 18.1 0.1 (0.9)
Other (53.5) 14.9 - (38.6)
-------------------------------- ---------- -------- ---------- ----------
Gross borrowings net of cash(1) (1,301.3) 144.0 0.2 (1,157.1)
Debt issuance costs 21.3 - (3.9) 17.4
-------------------------------- ----------
Total net borrowings(1) (1,280.0) 144.0 (3.7) (1,139.7)
-------------------------------- ---------- -------- ---------- ----------
(1 ) Borrowings excludes derivative financial instruments and
other financial liabilities fair valued through profit or loss.
14. Related parties
WP X Investments I Limited ("Warburg Pincus") is considered to
be a related party of the Group by virtue of its 15.8% equity
shareholding in Premier Foods plc and its power to appoint a member
to the Board of Directors under the relationship agreement between
Warburg Pincus and the Company. Pursuant to the relationship
agreement Mr Charles Miller Smith was appointed as a non-executive
director on 16 June 2009 and subsequently appointed Deputy
Chairman, with effect from 1 October 2010.
There have been no related party transactions during the period
or changes in the make up of the Group's related parties as
described in the last annual report, other than as described above,
that could have a material effect on the financial position or
performance of the Group during the period.
15. Contingencies
The Group has been in discussion with one of the Group Pension
Schemes relating to the possibility that it may have to recognise
some additional liability. The legal position and the potential
methods of calculation of the liability is, as yet, uncertain. In
the event that it materialises, the impact on net assets is not
expected to be significant and the cash impact would be spread over
several years in line with the agreed pension deficit recovery
period for the Scheme agreed by the Group and Trustees.
There were no other material contingent liabilities at 25 June
2011.
16. Post balance sheet events
On 8 February 2011, the Group announced that it reached an
agreement to sell its East Anglian canned grocery operation, which
is part of the Grocery segment, to Princes Limited for GBP182.2m
before disposal costs. This sale completed on 23 July 2011.
The results of the East Anglian canned grocery operations for
the period ending 25 June 2011 are included within continuing
operations as it is not a separate operating segment. At 25 June
2011, the assets of the operations were recognised within Assets
held for sale.
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Premier Foods (LSE:PFD)
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